Financial markets are recalibrating Federal Reserve rate cut expectations following stronger-than-expected US inflation data. The probability of a 50 basis point cut at the September FOMC meeting has declined sharply, with markets now favoring a more measured 25bp reduction. EUR/USD retreated from recent highs above 1.10 to trade at 1.0925, while GBP/USD fell 0.3% to 1.2785. Gold futures pulled back $18 to $2,487 per ounce as rising real yields reduced the appeal of non-yielding assets. The shift in sentiment reflects growing uncertainty about the pace of disinflation, with producer prices showing unexpected strength. Treasury markets have repriced accordingly, with the 10-year yield climbing to 3.95%. Traders are now focused on upcoming CPI data and Fed communications for further clarity on the monetary policy trajectory, with most analysts expecting a gradual easing cycle rather than aggressive cuts.
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