The month-on-month headline CPI for July was zero, while the core CPI rose by just 0.3%. The market reaction was immediate, with the strong US dollar falling against all its counterparts. EUR/USD surpassed the resistance level of 1.0280, while the treasury bonds yields fell notably, and the stock markets welcomed the data of lower inflation with significant increases.
Still, there are more inflation figures to be released before the next Fed meeting, but this data suggests that prices have probably peaked already. This affects interest rate expectations. Now the market puts the odds of a 75-bps rate hike at the next Fed meeting at just 30%.
Today we will know other important price data, such as the production price index (PPI), that confirm or not the downward trend in prices. Today's figure is important for equity markets as a decline in producer prices would fuel expectations of improved corporate margins.