The US Bureau of Labor Statistics released data on Wednesday, June 11th, showing the Consumer Price Index (CPI) rose 4.2% year-on-year in May, reaching its highest level since early 2023 and aligning with market forecasts. This marks the first time in three years that CPI inflation has breached the 4% threshold. The primary driver of the overall increase was higher energy prices, attributed to the conflict in Iran. The month-on-month increase of 0.5% matched expectations, slightly below the previous reading of 0.6%. An analysis by noted Fed commentator Nick Timiraos pointed out that, calculated on a three-month annualized basis, the overall CPI surged 8.2% in May; the month-on-month increase of 0.47% translates to an annualized rate of approximately 5.8%, bringing the 12-month gain to 4.2%, a three-year high.

Regarding core CPI, the year-on-year increase for May was 2.9%, in line with expectations and slightly up from the previous 2.8%; the month-on-month rise of 0.2% was below the market's 0.3% forecast and showed a noticeable deceleration from the prior 0.4%. Although core inflation remained moderate, real wages in the US saw their first year-on-year decline since April 2023, further straining consumer finances.

Furthermore, despite the latest US inflation data climbing to a more than three-year high, J.P. Morgan Asset Management believes this is insufficient to prompt the Federal Reserve to act at its meeting next week, with policymakers highly likely to keep interest rates unchanged. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, stated on Wednesday that while inflation remains above the Fed's target, the May figures likely represent the peak of this inflationary cycle, with price pressures expected to gradually ease in the coming months. "Essentially, I think the Fed will vote 12-0 to do nothing next week," he said. Markets widely anticipate the Federal Reserve will maintain the current interest rate at its policy meeting scheduled for June 16-17. This will also be the first policy meeting under new Fed Chair Kevin Warsh. Based on pricing in interest rate futures markets, investors have almost entirely ruled out the possibility of a rate hike or cut next week.

Key data to watch today includes the US Initial Jobless Claims for the week ending June 6th and the US Producer Price Index (PPI) year-on-year for May. Additionally, the European Central Bank's interest rate decision this evening warrants close attention.

US Dollar Index

The US Dollar Index experienced choppy trading yesterday, closing slightly higher on the daily chart, with the current exchange rate hovering around 99.90. In addition to short-covering providing some support, the rekindling of Middle East tensions fueling market risk aversion was also a significant factor underpinning the index's rebound. Moreover, the well-received US CPI data released during the session, which reinforced expectations for Fed rate hikes, offered further support. Today, focus will be on resistance near 100.50, with support located around 99.50.

Euro / US Dollar

The Euro declined in a volatile session yesterday, ending the day slightly lower, with the current exchange rate around 1.1550. Besides profit-taking exerting some downward pressure, the rebound in the US Dollar Index, supported by renewed risk aversion and positive economic data, was a key factor weighing on the Euro. However, expectations for interest rate hikes from the European Central Bank limited the pair's downside. Today, attention will be on resistance near 1.1650, with support around 1.1450.

British Pound / US Dollar

The British Pound moved lower in choppy trading yesterday, closing the day with modest losses, with the current exchange rate around 1.3380. Apart from profit-taking applying some pressure, the strengthening of the US Dollar Index, bolstered by heightened expectations for Fed rate hikes and renewed risk-off sentiment, also contributed to the Pound's decline. Furthermore, concerns over UK political uncertainty added to the downward pressure. Today, watch for resistance near 1.3450, with support around 1.3300.