Money markets indicate that the Federal Reserve will start cutting interest rates in September, following a continued slowdown in US inflation.
Traders are predicting a quarter of a percentage point cut at the September Fed meeting, after the consumer price index dropped from 3.3% to 3% in June, a sharper decline than expected.
The pound surged to its highest level against the dollar in nearly a year, exceeding $1.29, while US government borrowing costs also decreased.
The yield on the two-year Treasury bond, the return the government guarantees to buyers of its debt, saw its largest drop since January.
Deutsche Bank analyst Jim Reid commented, “It’s important to remember that one report doesn’t make a trend, but recent months have produced some of the weakest inflation numbers since the surge began in 2021, leading to growing expectations that the Fed will finally be able to start cutting rates in the coming months.”
