US stocks rallied today after inflation came in softer than expected, increasing the prospect of an interest rate cut later this year.
Core inflation, which removes volatile fuel and food prices, was 3.4% for May, improving on last month's 3.6% rise and coming in lower than the 3.5% analysts had predicted.
Headline inflation hit 3.3%, slowing from April's 3.4% and beating consensus by one-tenth of a percentage point.
Economists have welcomed easing inflation, arguing it will increase the likelihood of a September rate cut and drive dovish sentiment through the Federal Reserve.
Kathleen Brooks at XTB said: "Heading into the CPI report it felt like the latest inflation data would determine the outcome of tonight’s Fed meeting.
"The market has already priced in a dovish Fed: there is now a 65% chance of a September rate cut.
"The risk is that the market has got ahead of themselves pricing in a September rate cut. After all, the Fed will need to balance strong payroll growth alongside falling inflation when it makes its policy decision.
US interest rate futures are pricing in a 75% chance of a second cut in December.
"As we lead up to tonight’s Fed meeting, the Fed will either be kingmaker, or the king of disappointment for traders later today."