empty
15.08.2024 03:31 PM
U.S. Inflation Continues to Decline

The euro and the pound gained ground against the U.S. dollar following news that core inflation in the U.S. decreased for the fourth consecutive month on a yearly basis in July. This decline is expected to enable the Federal Reserve to begin cutting interest rates next month.

The so-called core Consumer Price Index (CPI), which excludes food and energy prices, increased by 3.2% in July compared to the previous year. This marks the slowest pace since early 2021. The monthly figure rose by 0.2%, slightly above economists' initial forecasts, which tempered the enthusiasm of risk asset buyers. Economists consider the core measure to be a better indicator of inflation than the overall CPI. Meanwhile, the overall Consumer Price Index also rose by 0.2% compared to the previous month and by 2.9% compared to the previous year. According to the Bureau of Labor Statistics, rising housing costs accounted for nearly 90% of the monthly increase.

This image is no longer relevant

It is clear that overall inflation is trending downward as the U.S. economy begins to slowly lose momentum. Combined with a weakening labor market, where unemployment has risen for four consecutive months, it is expected that the Federal Reserve will start cutting interest rates as early as next month. The size of the initial cut will likely be determined by incoming data. However, even if the Fed decides to cut rates (and there will be numerous reasons to do so), the committee is likely to maintain a restrictive policy overall until it achieves its 2.0% target.

It's worth noting that before the September meeting, officials will receive additional inflation data and another employment report, which will be carefully analyzed after disappointing July data triggered a sell-off in the currency market and heightened recession fears. Federal Reserve Chair Jerome Powell and his colleagues recently stated that they are now paying more attention to the labor component of their dual mandate, which Powell is likely to emphasize during his speech at the annual Jackson Hole symposium next week.

As mentioned earlier, the most disappointing part of the report was housing costs, which economists and policymakers had expected to decline and bring inflation closer to the Fed's target. Housing costs jumped by 0.4% after a 0.2% increase in June. The equivalent rent (the largest individual component of the CPI) also rose by 0.4%.

Other categories were more encouraging, especially for consumers. Prices for clothing and used cars fell last month. Medical care costs also saw their largest decline on record.

Regarding the current technical outlook for EUR/USD, buyers now need to focus on reclaiming the 1.1020 level. Only this will allow for a test of 1.1050. From there, the pair could move up to 1.1080. However, achieving this without the support of large players will be very challenging. The ultimate target would be the 1.1110 high. In the event of a decline, significant buyer activity is expected around 1.0985. If there is no action at that level, it would be advisable to wait for a drop to 1.0950 or consider opening long positions from 1.0910.

As for the current technical outlook for GBP/USD, pound buyers need to reclaim the nearest resistance at 1.2860. Only this will allow for a move towards 1.2890, above which breaking through this level will be challenging. The ultimate target would be around 1.2910. After this level, a sharper rise towards 1.2940 could be possible. In the event of a decline, bears will attempt to take control of 1.2820. If they succeed, breaking that range will deal a significant blow to the bulls' positions and push GBP/USD down to a low of 1.2780, with the potential to reach 1.2730.

Jakub Novak,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Pavel Vlasov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Chancy Deposit
    Deposit your account with $3,000 and get $4000 more!
    In July we raffle $4000 within the Chancy Deposit campaign!
    Get a chance to win by depositing $3,000 to a trading account. Having fulfilled this condition, you become a campaign participant.
    JOIN CONTEST

Recommended Stories

Why Are Markets Riding a Wave of Optimism? (There is a likelihood of rising oil prices and declining gold prices)

Recent events—including victorious declarations from Washington about agreements on customs tariffs with Japan and the EU—continue to support demand for risk assets. At least for now, investors are not concerned

Pati Gani 10:16 2025-07-30 UTC+2

The Fed Unlikely to Send Clear Signals

While the euro and British pound show modest gains against the U.S. dollar, investors hoping for Jerome Powell to hint that the Federal Reserve is moving closer to a rate

Jakub Novak 09:54 2025-07-30 UTC+2

The Market Welcomes the Truce

The final word in the U.S.–China trade negotiations is expected from Donald Trump. Until that happens, the S&P 500 has decided to take a step back—especially with key U.S. data

Marek Petkovich 09:05 2025-07-30 UTC+2

What to Pay Attention to on July 30? A Breakdown of Fundamental Events for Beginners

A considerable number of macroeconomic reports are scheduled for Wednesday. Germany, the Eurozone, and the United States will all release Q2 GDP reports. It is worth noting that while

Paolo Greco 07:07 2025-07-30 UTC+2

GBP/USD Overview – July 30: The Pound Keeps Falling "in Sympathy"

The GBP/USD currency pair continued its decline on Monday and extended the move into Tuesday. It's worth noting that the British pound began falling earlier than the euro, already last

Paolo Greco 03:48 2025-07-30 UTC+2

EUR/USD Overview – July 30: Beating the Fallen

The EUR/USD currency pair continued its downward movement on Tuesday, driven by the same factors as on Monday—as we warned in advance. On Monday, it was revealed that the European

Paolo Greco 03:48 2025-07-30 UTC+2

The Fed Will Remain in Wait-and-See Mode Until September

There will likely be some dovish hints, but they will probably not differ from previous statements and rhetoric by Federal Reserve officials. This is the general expectation one day before

Chin Zhao 01:14 2025-07-30 UTC+2

Trump Will Defeat the Fed One Way or Another

Donald Trump continues to reshape the world order. The U.S. President keeps dictating terms to nearly half the world's countries—and his strategy is working so far. The trade agreement with

Chin Zhao 01:14 2025-07-30 UTC+2

AUD/USD Ahead of a Crucial Release

On July 30, key data on inflation growth in Australia for the second quarter will be published. This release is highly significant for the AUD/USD pair, especially in the run-up

Irina Manzenko 01:14 2025-07-30 UTC+2

The Euro Lost the War

To be or to appear? The sharp EUR/USD rally to nearly four-year highs in early July may have looked like the eurozone's confidence in a bright future. A strong economy

Marek Petkovich 01:14 2025-07-30 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.