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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange Decision Analysis]: The situation of the US-Iran nuclear negotiations has taken a sharp turn, and the United States has ordered the reduction of the scale of its mission to Iraq!". Hope it will be helpful to you! The original content is as follows:
Intraday of Asian trading on June 12, the U.S. dollar index fell as data showed inflation in the world's largest economy last month was lower than expected, suggesting that the Fed may recover from interest rate cuts ahead of schedule rather than delay.
In terms of data, the U.S. Department of Labor announced that the Consumer Price Index (CPI) rose by 0.2% last month after rising 0.1%. Economists surveyed by Reuters predict CPI will rise by 0.2%.
The core price pressure in May is not high, and the core CPI only rose 0.1% after rising 0.2% in April. But the overall CPI rose by 2.4% after rising 2.3% year-on-year in April.
Elias Haddad, senior market strategist at BrownBrothers Harriman, said inflation is slowing, which has led to a lower U.S. interest rate expectations. Federal funds rate futures have begun to firmly hold on to the possibility of a 50 basis point cut by the end of the year, considering that the average U.S. tariffs have risen to more than 15% from 2% in January, inflation from tariff hikes has been sluggish so far. We haven't seen the full impact of tariffs on inflation yet. I think we will see the impact in the second half of the year. "
After the CPI data, short-term interest rate futures traders priced the probability of the Fed cutting a one-quarter percentage point in September at 71%, barborka.infopared with 57% before the data was released. Futures traders also digested the rate cut of 50 basis points, barborka.infopared with 45 basis points earlier this week.
Meanwhile, the foreign exchange market said Wednesday to U.S. barborka.infomerce Secretary Lutnik on Wednesday that it expects to reach trade deals with other countries starting next week.
PaleoLeon'sManaging Director John Praveen said the worst may have passed, and the trade reached an agreement. The question is whether it can be implemented. The fact that they reached some kind of agreement might at least give the market a sigh of relief. What is important is that things are easing.
Japan's business confidence deteriorated sharply in the second quarter, and a survey by the Ministry of Finance showed that various industries generally lost confidence.
The overall index of large enterprises fell to -1.09, down from 2.0 in the first quarter. Sentiment from large manufacturers further weakened from -2.4 to -4.8, while sentiment from large non-manufacturers plummeted from 5.2 to -5.7, indicating that economic uncertainty is spreading beyond export-intensive industries.
The survey also highlights growing profit pessimism. Large manufacturers now expect recurring profits to fall -1.2% in the fiscal year ending March 2026, down from a -0.6% decline in the last survey. Especially worrisome is the outlook for the automotive industry, with automakers and barborka.infoponent suppliers expecting profits to drop significantly -19.8%.
This highlights growing concerns about the impact of high U.S. tariffs, which could severely hit Japan's flagship export industry and drag down wider economic momentum.
European Central Bank chief economist Philip Lane stressed that last week's interest rate cut is a strategic step to ensure inflation remains on the trajectory of the 2% target in the medium term. Without this move, he believes that the "projected negative inflation bias" could become deeply rooted in the next 18 months.
In today's speech, Ryan also emphasized the importance of clear response functions of the ECB. By lowering the deposit facility rate to 2.00%, the central bank sent a signal that “we are determined to ensure inflation returns to target levels in the medium term.” This helps to “support inflation expectations and avoid unwarranted tightening of financial conditions.”
Ryan, on the other hand, warns that keeping interest rates at 2.25% may send a false signal that could trigger market repricing, which will exacerbate a “more obvious and longer-lasting downward on inflation targets.”
Martins Kazaks, a member of the ECB Management barborka.infomittee of Latvia, said he was open to further interest rate cuts, indicating that while the ECB has implemented a major easing policy, it may require a "fine-tuning" adjustment based on the economic development.
He noted that the current market pricing for another rate cut “is not beyond the baseline”, but stressed that any additional measures must be adjusted carefully to keep inflation near the 2% target.
Kazakhs warn against barborka.infoplacency, emphasizing the risk of continued inflation falling below the downward adjustment. While not yet inclined toward a loose field, he stressed the importance of staying vigilant, especially under the uncertainty of global trade tensions. So far, the deflation effect seems to dominatebut the final result is still highly uncertain and must be paid close attention.
U.S. consumer inflation data in May has weaker than expected, providing some relief to markets worried about price pressures brought about by tariffs and wider cost transfers.
The overall CPI rose only 0.1% month-on-month, lower than the market expectations of 0.2%. The core CPI, which excludes food and energy, also unexpectedly fell, up 0.1% month-on-month, while the expected increase of 0.3% month-on-month. The overall price increase was driven mainly by housing (0.3% month-on-month) and food (0.3% month-on-month), while the monthly decline in energy prices was -1.0%.
On the year-on-year calculation, the overall CPI rose slightly from 2.3% to 2.4%, still lower than the expected 2.5%. The core CPI remained stable at 2.8% year-on-year, also lower than the 2.9% expectation.
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