The latest U.S. economic data has bolstered market sentiment, following Wednesday’s inflation report, which revealed that core consumer prices in July rose at the slowest annual pace since 2021. This significant cooling in inflation has heightened expectations for the Federal Reserve to initiate interest-rate cuts in the upcoming September meeting. Traders are now fully pricing in a 25 basis-point reduction next month, with an additional 100 basis points of easing anticipated by the end of the year. This pricing reflects a strong belief that the Fed will implement at least one half-point cut across its remaining three meetings in 2024.
In the bond market, U.S. Treasuries experienced a slight decline in Asia, with the yield on the 10-year note edging up by one basis point to 3.84%. The dollar strengthened against most major currencies, while the yen remained relatively stable near 147 to the dollar, after a 0.3% drop on Wednesday.
In the commodities sector, oil prices managed to recover some ground in early trading, following a two-day decline. Meanwhile, gold price, breaking a two-day losing streak to trade above $2,450 per ounce.
The combination of easing inflation and rising confidence in upcoming Fed rate cuts is shaping market dynamics, as investors position themselves for potential shifts in monetary policy. The movement in Treasury yields and currency values underscores the market’s anticipation of a more accommodative stance from the Fed, which could have broad implications for global financial markets in the months ahead.