US consumer price inflation slowed markedly in June, rekindling hopes that the Fed could soon be able to call an end to its fastest rate-hiking cycle since the 1980s. Annual headline inflation for the month was 3%, down from 4% the prior month and the smallest increase since March 2021.

Core inflation, which excludes volatile food and energy prices, rose 4.8%, decelerating from 5.3% in May and coming in below the consensus forecast of economists. There were even promising signs that services sector inflation, which has been a major concern for policymakers, is cooling. Services excluding housing and energy decelerated to a 4% annual advance, also the smallest increase since late 2021. 

Despite the good news on inflation, our view is that the Fed will be reluctant to declare victory just yet. But the data do support our base case that an end to hikes is now in sight, which will add to pressure on the US Dollar.