US inflation came in below forecast in June, giving markets some relief after the latest jump in geopolitical risk. Headline CPI fell 0.4% on the month, compared with expectations for a 0.1% decline. The annual rate slowed to 3.5% from 4.2%, also below the 3.8% consensus. Core CPI was flat on the month, missing the 0.2% estimate. The annual core rate eased to 2.6% from 2.9%, undershooting expectations for 2.8%.

Energy did most of the work in pulling the headline figure lower. The energy index fell 5.7% in June, led by a 9.7% drop in gasoline prices. That more than offset firmer food prices, which rose 0.2% on the month. Shelter inflation also cooled, rising just 0.1%, the smallest monthly gain since January 2021. The softer shelter print will be welcome at the Fed, given how sticky that category has been.

The report helps calm worries that the oil shock from US-Iran tensions could quickly feed into a broader inflation rebound. Core goods slipped 0.1%, while services excluding energy were flat. Motor vehicle insurance, apparel, communication, medical care, and used cars all declined on the month. That mix points to softer underlying price pressure, not just a one-off energy move. Traders will now turn to Kevin Warsh’s first appearance before Congress as Fed chairman for any clues on the rate path.

Markets reacted quickly to the downside CPI surprise. The two-year Treasury yield fell 10 basis points on the day to 4.18%. The US dollar also moved lower as rate-hike concerns eased. Stocks rose as investors marked down the risk of a more hawkish Fed response. The data does not settle the policy debate, but it gives markets a cleaner reason to lean risk-on for now.

Loonie gains after softer US CPI

The Canadian dollar gained ground against the US dollar early Tuesday after softer-than-expected US CPI data pushed the greenback lower and eased pressure from rising US yields. Firmer oil prices also helped, with WTI near $80 a barrel and Brent around $86 after the US and Iran exchanged weekend strikes. Still, the bigger driver for USD/CAD was the inflation print, which cooled fears that higher energy prices would force the Federal Reserve into a more hawkish stance.

On the domestic side, the latest labor report is unlikely to shift the Bank of Canada’s thinking. Job growth has cooled, but slower population growth makes that less troubling than it would have looked a year ago. On a per-worker basis, the labor market looks steadier, which leaves room for unemployment to edge lower later this year.

The Bank of Canada is expected to keep its policy rate unchanged at 2.25% on Wednesday. The statement, Monetary Policy Report and Governor Tiff Macklem’s prepared remarks arrive at 9:45 a.m. ET, followed by his press conference at 10:30 a.m. Markets will watch for any shift in tone on Iran, oil prices, trade talks and the Bank’s balance-sheet plans.

USD/CAD has broken below 1.41 after spending much of the past three weeks between roughly 1.411 and 1.424. The pair is now trading closer to 1.405, as softer US inflation weighs on the Dollar and helps ease the drag from wider yield spreads seen over the past month. Higher oil prices offer some support for the loonie, but that tailwind may prove short-lived, as it did early in the US-Iran conflict in March. The near-term focus now shifts to whether the BoC sounds cautious enough to slow the move lower in USD/CAD.

Softer US Dollar helps Peso

The latest US CPI downside surprise has added a new tailwind for Mexican assets. Softer-than-expected inflation helped cool concerns that higher oil prices would force the Federal Reserve back toward a more hawkish stance. US yields fell, the Dollar weakened, and rate-sensitive trades found fresh support. For Banxico, the local inflation story still drives policy, but a softer US inflation print reduces external pressure. It also gives investors more room to lean into Mexico’s carry advantage.

Banxico’s June minutes showed more confidence in disinflation, but not enough to restart the easing cycle. The board kept the policy rate at 6.50% and signaled that a prolonged hold remains the preferred path. Slack in the economy, peso strength and fading inflation shocks support that stance. Sticky services inflation still keeps Banxico cautious and limits the case for near-term cuts. That leaves the central bank patient, even as the inflation backdrop improves.

For MXN, the setup remains constructive. USD/MXN is trading near 17.40, down about 0.7% on the day as the Peso gains from the weaker Dollar backdrop. The pair has moved lower after failing to sustain a push toward the 200-day moving average near 17.73. Short-term moving averages still point to some consolidation risk, but momentum has cooled from overbought levels. Global sentiment, US yields and the Dollar may remain the bigger drivers for the Peso this week.

Market snapshot

Table: Currency trends, trading ranges & technical indicators

Key global risk events

Calendar: July 13 – 17

All times are in EST

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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.