The latest Personal Consumption Expenditure (PCE) inflation data released by the U.S. Department of Commerce showed an annual growth rate of 2.5 per cent in June, slightly lower than the 2.6 per cent in May, a slight slowdown in line with market expectations. Core inflation excluding food and energy remained unchanged at an annual rate of 2.6%, also in line with market expectations.

With the release of the inflation data, the 10-year U.S. bond yield fell, indicating that investors expect the Federal Reserve Board to begin monetary easing in September. the CME's FedWatch tool shows that the market's expectations for a 25-basis-point interest rate cut in September reached 90 per cent.

Kim Forrest, chief investment officer at Bokeh Capital Partners, said the data was in line with expectations and we are on the path to a rate cut, most likely in September.David Albrycht, senior investment manager at Newfleet Asset Management, noted that growth is slowing, inflation is cooling and monetary policy is working.

According to the report, goods prices fell by 0.2 per cent month-on-month, while service prices increased by 0.2 per cent. Housing-related prices rose 0.3 per cent in June, decelerating from 0.4 per cent in previous months and the smallest monthly increase since January 2023. Personal income rose just 0.2%, lower than the expected 0.4%, while spending rose 0.3%, in line with expectations.

The Fed targets an inflation rate of 2% and PCE is its preferred inflation indicator. The Fed is expected to leave interest rates unchanged in its upcoming meeting, but will also open the door to a rate cut in September. Despite the moderation in inflation, the cumulative impact of high interest rates has put pressure on consumers and businesses, and economic growth has slowed.

Olu Sonola, head of U.S. economic research at Fitch Ratings, said the key is whether the positive momentum we have seen over the past three months will be disrupted ahead of the September Fed meeting. He also believes that next week's labour data could set the stage for a rate cut in September.