The US consumer price index rose 3.5% year-on-year in June, down from 4.2% in May and well below the 3.8% consensus forecast, the Labour Department reported on Tuesday. The core rate, excluding food and energy, eased to 2.6% from 2.9%. It was the largest monthly decline in headline prices since May 2020, driven by retreating gasoline costs. Within minutes, the probability of a Federal Reserve rate increase at the July meeting, as implied by CME fed funds futures, collapsed from roughly 40% to 13–16%. The two-year Treasury yield fell 11 basis points to 4.19%, the dollar index shed 0.33% against a basket of peers, and the S&P 500 closed 0.38% higher, with the Nasdaq up 0.9%.

The disinflation print gave the Fed “greater scope to remain on hold for longer,” said Sim Moh Siong, FX strategist at OCBC in Singapore. In Washington, however, newly installed Fed Chair Kevin Warsh told the House Financial Services Committee that the central bank has “no tolerance” for persistently elevated inflation and remains committed to its 2% target. His testimony tempered some of the bond-market euphoria, and analysts in London noted that one month of softer data would not close the door to tightening if oil prices continue to climb.

Equity markets drew additional support from the unofficial start of second-quarter earnings season. JPMorgan Chase reported a record quarterly profit, Goldman Sachs surged 9%, and Bank of America gained 1.9%. But IBM shares plunged 25% after the company warned that clients had abruptly shifted spending from software to AI-related servers and storage, causing it to miss revenue forecasts. The PHLX semiconductor index rose more than 3%, with Nvidia up 4.1% and South Korea’s SK Hynix rebounding 27% in US trading. In Asia, the KOSPI jumped 6% and the Nikkei 225 added 0.4%, while European bourses recovered early losses to end modestly higher.

Crude oil prices extended their rally as the US reimposed a naval blockade on Iranian ports and launched fresh strikes, though President Trump later backed away from a proposed 20% transit fee on the Strait of Hormuz. Brent settled 1.7% higher at $84.73 a barrel, and West Texas Intermediate rose 1.5% to $79.34. The renewed hostilities kept inflation risks in focus, with CBA economists warning that “one month of softer-than-expected CPI data will not close the door to interest rate hikes.” Markets now look to US producer price data due later in the week and the Fed’s July 29 decision for further direction.