Dollar Stable After Mild US Inflation Report, Yen Rally Halts

The Personal Consumption Expenditures (PCE) price index climbed 2.5% year over year, slightly down from a rise of 2.6% in May, according to economists polled by Reuters. The Federal Reserve closely monitors this PCE data as it influences monetary policy decisions. 
 
This inflation trend could boost officials' confidence that inflation is progressing towards the U.S. central bank's target of 2%. Steve Englander, head of G10 FX research at Standard Chartered Bank in New York, commented that the quarterly PCE data released along with Thursday's strong GDP growth rate print spurred anticipation for worse monthly figures. 
 
However, Friday's numbers revealed a rise at a rate of 2.9%, which was somewhat relieving compared to previous expectations. "It wasn't a home run, but compared to yesterday, markets said, 'Yep, nothing to worry about here," stated Englander. 
 
In terms of currency market trends this month, the yen has been dominant after surging to an almost three-month high on Thursday and starting the month at its lowest point in 38 years before intervention by Japan’s central bank and expectations for hawkish policy adjustments next week. 
 
Market speculation suggests there’s a possibility that the Bank of Japan may increase rates next week; there is currently a 64% chance priced into markets for such a hike by ten basis points. However, unless investors are persuaded back into Japanese assets following BOJ actions next week, it would be challenging to argue any turning point for the yen currently amidst global tech investment focus both locally and internationally. 
 
Meanwhile, despite economic fluctuations represented by GDP variations between 2.8% and 2.6%, other factors like political elections and equity market performance seem more impactful on market repositioning, as per Englander’s observation. 
 
Elsewhere in currency movements, Sterling rose marginally against the US dollar, trading around $1.2860—well below last week's one-year high with markets pricing in a 50% probability of a rate cut by the Bank of England next week; the dollar gained against the Swiss franc and offshore Chinese yuan; and the Australian dollar and kiwi both strengthened against the US dollar. 
 
In terms of benchmark yields, U.S. 10-year note yields fell by more than five basis points after the report, alongside two-year notes, which typically align with interest-rate expectations. 
 
The Federal Open Market Committee is set to meet at the end of July along with the BOJ. While it's expected to maintain borrowing costs steady for now, market speculation continues to lean towards a potential Fed cut in its September meeting, followed by up to two additional cuts this year. 
 
Finally, cryptocurrencies also showed positive movements, with Bitcoin gaining almost 4%, trading around the $67k mark, and Ethereum rising over three percent as well.