All’s well that ends well. US inflation came in line with expectations yesterday; core CPI fell for the first time in six months and the monthly CPI figure was a bit lower than expected. Cherry on top, retail sales stagnated in April and came to cement the idea that the US economy could be finally slowing. The combination of slowing growth and softer inflation is a godsend for equity markets who needed this boost; there is nothing more appetizing for investors than the smell of lower future rates. The US yields fell, equities rallied and the USD depreciated.

While the dollar’s depreciation is more than welcome for the other central banks – because it reinforced the rate cut expectations there, as well – the rally in major currencies could remain limited against the US dollar given the Fed members’ cautious approach to the rate cuts before they are sure inflation is on a solid path to their 2% target.

In metals and commodities, yesterday’s satisfactory US inflation data keeps the perspective of major central bank rate cuts wide-open and supports the continuation of the reflation trade that’s supportive of oil and copper. 

This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.

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