June CPI Surprises to Downside, Dollar Drops Sharply

U.S. inflation cooled sharply in June, with the Consumer Price Index rising just 3.5% year-over-year against a 3.8% consensus forecast, delivering one of the clearest signals in months that the post-spring price surge is fading. On a monthly basis, headline prices actually fell 0.4%, a stark reversal from expectations for a 0.1% rise. Core CPI slowed to 2.6% annually from 2.9%, and the monthly core reading came in flat at 0.0% — its softest pace since January 2021.

The disinflationary trend was unusually broad. Energy led the retreat as gasoline prices tumbled, but the relief extended well beyond the pump. Shelter costs posted their smallest monthly gain since January 2021, while core services excluding shelter recorded their weakest reading since May 2020. Motor vehicle insurance, apparel, used cars, medical care, and lodging all contributed to the encouraging print.

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The dollar sold off sharply in the immediate aftermath, with technical charts signaling further downside risk for the greenback. Fed Chair Kevin Warsh, testifying the same day, maintained a hawkish tone — declaring the Fed has "no tolerance for persistent elevated inflation" and that "inflation is a choice" — but Chicago Fed President Austan Goolsbee called the June data "surprisingly benign," adding to expectations that the policy path could shift.

Elsewhere in Monday's session, crude oil settled at $79.34, up $1.20 on the day, though prices briefly retreated after President Trump walked back a proposed 20% reimbursement fee on oil transiting the Strait of Hormuz. Fitch affirmed Canada's sovereign credit rating at AA+ with a stable outlook, while RBC raised its growth forecasts for both Canada and the U.S., though the bank sees the Fed and the Bank of Canada remaining on hold through 2026.

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