Prospects of Fed Rate Hike Cool as US Inflation Slows in July

With the slowdown in U.S. price increases, the likelihood of additional rate hikes by the U.S. Federal Reserve (Fed) has decreased. The U.S. Bureau of Labor Statistics announced on the 12th (local time) that the July Consumer Price Index (CPI) rose 0.1% from the previous month and 3.4% from the same month last year. The market interpreted this indicator as a signal buying time for the Federal Reserve. According to the CME Group's FedWatch, the probability of a Fed rate hike in September dropped from 55% a week ago to 34%. The core Personal Consumption Expenditures (PCE) price index, preferred by the Fed, was also analyzed to be slightly above 3%.

The strong dollar and U.S. Treasury yields paused. The yield on 10-year U.S. Treasuries fell 1.37bp from the previous day to 4.678%. In the Asian foreign exchange market on the 13th, the dollar was trading at 1,414.40 won per dollar, down 0.2% against the won. As expectations for a U.S. rate hike eased, concerns about a widening interest rate gap between Korea and the U.S. diminished, easing pressure on the strong dollar. This served as a signal for the South Korean financial market to alleviate the burden of a weak won and import prices.

The South Korean stock market rebounded as reduced expectations for U.S. rate hikes combined with hopes for semiconductor earnings. On the 13th, the South Korean stock market surged 3.78%, recording the largest gain among major Asian stock markets. The KOSPI rose to 6,844.65, with Samsung Electronics up 5.4% and SK Hynix up 7.1%.

International oil prices also fell below $90 a barrel. In the Asian market on the 13th afternoon, Brent crude recorded $88.87 per barrel and West Texas Intermediate (WTI) crude recorded $83.11. This follows a report that U.S. crude inventories increased by 17.40 million barrels over the week ending the 7th, the largest increase since January 2023. The International Energy Agency (IEA) forecast global oil demand growth for this year at 1.60 million barrels per day, while the Organization of the Petroleum Exporting Countries (OPEC) lowered its demand forecast from 780,000 barrels per day to 580,000 barrels per day. However, energy prices remain 14.7% higher than the same month last year.

Japan's producer prices rose 7.2% year-on-year in July. On the 13th, U.S. price stability and falling international oil prices coincided in the global financial market. The burden of the dollar and interest rates decreased, as did energy import costs.