US consumer prices fell 0.4% in June from the month before on a seasonally adjusted basis, according to figures published this afternoon by the U.S. Bureau of Labor Statistics, the federal agency that compiles the inflation data. That was a steeper drop than the 0.2% fall economists had expected and the largest one-month decline since April 2020. It pulled annual inflation, the change in prices over the past 12 months, down to 3.5% from 4.2% in May, unwinding much of the inflation scare that ran through the spring.
The fall was almost entirely an energy story. The energy index dropped 5.7% on the month, its steepest decline since 2020, as petrol prices fell 9.7% — the ceasefire in the Middle East unwinding the spike that had followed the spring's attacks on Gulf shipping. Strip out food and energy and core inflation, the underlying trend the central bank watches most closely, was flat on the month, its softest reading in over a year, bringing the annual core rate down to 2.6% from 2.9%. Shelter, the largest single component, rose just 0.1%, the smallest monthly increase since January 2021.
For policy, a cooler core matters more than a cheaper tank of petrol. The Federal Reserve, America's central bank, held its benchmark rate steady in June but signalled through its own projections that it was prepared to raise borrowing costs again this year if inflation proved stubborn. A flat core reading eases that pressure and trims the odds of a move as soon as September, though at 2.6% underlying inflation still sits well above the Fed's 2% target, so the door is not shut. Softer US rate expectations tend to weigh on the dollar, since they lower the return on holding it.
What it means for GBP/USD
The pound came into the release trading around 1.3380 against the dollar, having drifted for much of the week as renewed Middle East tensions lent the greenback safe-haven support. A softer-than-expected print took some of that support away, helping sterling firm back toward 1.34. The near-term bias stays modestly with the pound, underpinned by expectations that the Bank of England will keep UK rates high for longer, though a fresh flare-up in the Gulf or a more hawkish turn from the Fed could quickly hand the dollar back its bid. For a business paying dollar suppliers, or anyone with a known dollar cost to meet in the months ahead, a forward contract can fix today's rate for a payment due later, protecting the budget whichever way the next print lands.
