US PPI Cools Further, Reinforcing Fed Pause Expectations

US producer inflation came in below market expectations in June, reinforcing the cooling trend seen in Tuesday's CPI report.

The softer data further reduced expectations of a Federal Reserve rate hike, with markets now largely pricing in a pause at the July meeting.

Headline PPI and core PPI both signalled easing price pressures, while lower energy costs continued to drag on overall inflation.

Following the release, US Treasury yields declined across the curve, led by the two-year yield, as investors increased bets that the Fed will keep interest rates unchanged.

The US dollar weakened after the report as lower rate expectations reduced demand for the greenback.

Meanwhile, gold found support from falling yields and a softer dollar, while lower borrowing cost expectations remained broadly positive for US equities.

Despite the encouraging inflation data, Federal Reserve officials maintained a cautious tone.

Policymakers acknowledged that inflation is moving in the right direction but stressed that future decisions will remain data-dependent.

US stocks closed modestly higher, although gains were concentrated in large-cap technology names.

At the same time, investors rotated away from parts of the semiconductor sector, highlighting a more selective approach to risk assets despite improving inflation sentiment.

Looking ahead, inflation data and Fed commentary will remain the key drivers for markets.

If inflation continues to cool, gold could remain supported, the US dollar may stay under pressure, and equity markets could continue to benefit from expectations of a prolonged Fed pause.