The USD declined 0.4% yesterday after the producer price index rose less than forecast, showing results in categories that feed into the PCE inflation index—the Fed’s preferred price measure—that were subdued. Fed's Bostic spoke yesterday, noting, "It would be really bad if we started cutting rates, and we had to turn around and raise them again," adding, "I'm willing to wait, but it's coming." Bostic indicated a willingness to support a rate cut by the end of the year.

The USD traded mixed overnight, falling modestly before the North American session and the crucial CPI print. Inflation data aligned closely with expectations, with the yearly headline reading coming in slightly below forecast (2.9% versus 3.0%) to mark its first sub-3% print since March 2021. USD price action was limited post-release, with the USD recovering slightly towards yesterday’s closing levels and trading stronger against most of the G10. The report supports a patient approach to easing by the Fed, and investors have reduced expectations for easing during the remainder of 2024.

EUR/USD gained over 0.5% yesterday, extending gains by 0.35% overnight to trade at its highest level since early January. The preliminary reading of Q2 GDP met expectations, while the eurozone household labor force survey missed estimates as firms slowed hiring at the start of the second quarter. Industrial production in June significantly missed forecasts, including downward revisions to the previous reading. The pair is trading about 0.9% higher than this time last week. Key CPI data is released next Tuesday.

GBP/USD rose 0.6% yesterday, falling as much as 0.3% overnight after CPI data came in below expectations for the various measures. Most importantly, services inflation at 5.2% (forecast: 5.5%) will be welcomed by the BOE, significantly below the MPC’s 5.56% projection. The unemployment rate unexpectedly fell to 4.2% yesterday versus a forecast of 4.5%, while wages eased from the previous reading. The preliminary reading of Q2 GDP is released tomorrow. The pair is trading about 0.95% higher than this time last week.

USD/CAD closed 0.25% lower yesterday, and the Canadian Dollar was a relative G10 underperformer this morning before the US CPI print. The pair is slightly higher after the US inflation report and is roughly 0.2% lower than this time last week, having traded in a tight range of just 0.3% over the period. Manufacturing sales and housing starts data are released Friday, and the July inflation report is released next Tuesday. Implied swap odds have decreased slightly but still fully price in 3 full BOC rate cuts by the end of the year.