U.S. stocks finished higher, and global equities hit new highs for 2023 on Thursday. Meanwhile, the dollar and Treasury yields continued to decline as cooling U.S. inflation raised speculations that the Federal Reserve may pause rate hikes.
Recent reports revealed a more significant slowdown in U.S. core inflation than anticipated. The June consumer price index (CPI) report displayed a growth of 0.2 percent, falling short of the market’s expectations of 0.3 percent, while the annual headline CPI decreased to three percent.
Wall Street’s main stock indexes extended their gains from Wednesday after recent data showed a small increase in consumer prices for June, marking the lowest annual growth over two years.
Dow Jones Industrial Average futures obtained 206 points, an increase of 0.6 percent, while S&P 500 contracts rose by 0.8 percent. Futures tracking the technology-focused Nasdaq Composite also saw a one percent increase.
Additional information released on Thursday indicated that U.S. producer prices showed little growth in June, and data from the Labor Department revealed an unexpected decrease in the number of American citizens filing new claims for unemployment benefits just last week.
Expectations that the Federal Reserve may soon end its monetary tightening efforts caused the dollar to reach its lowest point since April 2022, and the yield on 10-year U.S. Treasury notes approached a two-week low.
In Asia, stocks and bonds also experienced a rally following the U.S. inflation development, while in Europe, the STOXX index continued to build on Wednesday’s gains by adding 0.6 percent.
Dollar index plummets
Bond yields retreated after an increase last week. The 10-year Treasury yield decreased to 3.706 percent, down 10.2 basis points from a seven-month high of 4.0940 percent on Friday. Meanwhile, the two-year yields slipped to 4.616 percent, down 12.6 basis points.
The dollar index dropped by 0.8 percent to 99.738, reaching a 15-month low. The index reaching a low point weakened the dollar’s yield advantage over other currencies. The euro increased by 0.9 percent to $1.1220, hitting a 16-month high. The euro’s gain against the dollar marked its longest consecutive rise this year.
The Japanese yen gained 0.37 percent against the U.S. dollar. Additionally, the dollar plunged to an eight-year low of 0.8583 francs against the Swiss franc, and it is now trading at 0.8588 francs, down by nearly one percent.
“I pretty much understand the reason as to why the dollar is dropping, and it’s pretty compelling for dollar bears given the data that we have been seeing. Short term, we will see a little more dollar weakness,” said Jefferies’ global head of FX, Brad Bechtel.
However, Betchel pointed out that the U.S. economy’s strong performance compared to other countries will support the dollar. He also observed that the U.S. economy is performing well, avoiding a sharp decline, and that the data consistently show positive signs.
It is still uncertain whether the dollar will continue to decline throughout the rest of the year.
“It’s hard to be super negative about the dollar as the U.S. economy has done okay. The European economy did pretty well last year and at the beginning of this year relative to expectations,” said Ugo Lancioni, head of currency management and portfolio manager at Neuberger Berman.