INTEREST RATES AND CURRENCIES: A surprise in US inflation figures – Interest rates on government bonds are falling

The interest rates on US government bonds started to fall significantly, driven by better-than-expected inflation figures.

The country’s consumer price index slowed to 3.5 percent on an annual basis in June from last month’s 4.2 percent. The consensus of economist forecasts collected by Bloomberg was 3.8 percent.

According to Bloomberg, this is the first time in six years that the country’s consumer prices fell on a monthly basis compared to the previous month.

At the time of the review, the interest rate on the US ten-year government bond was down six percentage points at 4.563 percent. The country’s two-year interest rate was down by ten percentage points and the 30-year interest rate by three percentage points.

The US central bank, the Fed, is expected to keep its key interest rate unchanged at the current range of 3.50-3.75 percent at the July interest rate meeting.

“In our view, June’s consumer price index inflation figures poured a bucketful of cold water down the neck of July’s interest rate hike expectations, but due to the change of the central bank’s governor and the reduced line of communication, there is a lot of uncertainty surrounding the monetary policy step. The situation in the Middle East still has time to change many times before the July meeting, so the future interest rate decision is by no means completely sealed yet”, OP Pohjola’s senior market economist Jari Hännikäinen comment.

Currently, the market is expecting one rate hike from the Fed this year.

Later in the day Kevin Warsh will appear before Congress for the first time as the head of the Fed.

The Middle East crisis continues

On the other side of the Atlantic, in Europe, interest rates on government bonds were mainly on a gentle rise. Germany’s and France’s ten-year government bond interest rate rose by one percentage point, and Britain’s decreased by one percentage point.

The price of oil has risen sharply at the beginning of the week, when tensions in the Middle East escalated again. The United States also said it would restart the maritime embargo against Iran. The blockade should start today, Tuesday.

North Sea Brent benchmark oil was up two percent at $83 per barrel.

On the foreign exchange market, the dollar strengthened by approximately 0.6 percent against the euro and 0.3 percent against the yen. At the time of review, one euro was worth 1.1453 dollars, 185.44 yen, 0.8538 pounds and 11.015 Swedish kronor. One euro equals 161.93 yen and 0.7456 pounds.