Dollar Whipsaws as US Inflation Remains Nonexistent

The US dollar initially  weakened, and Treasuries rallied after US inflation readings showed softness across the board.  With no headline inflation in place, the Fed’s decision to cut rates should be an easy one at the July meeting.  Odds for a rate cut at the July 31st meeting rose to 75.9%, while the next week’s meeting remained around 20%.  The Fed’s transitory effects could still be lingering and with core figures still hovering at the Fed’s target, the case for a June cut should be off the table.  The core consumer price index which removes energy and food costs climbed 2% from a year earlier missing forecasts, but still posting its fourth straight monthly increase.

The dollar dropped 15 pips to the euro following the data but has settled  near unchanged levels at 1.1318.

Fed funds futures are now indicating a rate of 1.725% at the end of the year.  The yield on 10-year Treasuries slumped 2.8 basis points to 2.115%, while the dollar fell to the weakest levels in almost two months.