The USD Dwindles as the Market Awaits the US CPI Data Release

USD

The USD dwindled in European trade on Tuesday, taking on a holding pattern before US’s CPI data was released.

The dollar index, against six other currencies, traded 0.1% lower at 106.188, dropping from Friday’s 106.93, its peak since July 28, 2022.

Friday’s strong July U.S job reports increased expectations that the Fed will resume its hostile rates with another hike of 75bp in September.

Analysts at ING said in a note, “An unequivocally strong US July jobs report released on Friday has gone a little way to assuaging recession fears and given credence to last week’s pushback from the Fed that it was nowhere near done in terms of tightening.” This makes the market expect the Consumer Price Index on Wednesday because rates are about to increase.

The market expects the July CPI figure to reduce to 8.7% on an annual basis from 9.1%, but a New York Fed survey showed that consumers’ inflation expectations fell in July.

A broadened fall in the CPI release might be sufficient evidence that inflation has soared to influence the Fed to relax its increased rate hike, and the dollar has dwindled in tight trading ranges ahead of the number.

EUR/USD rose 0.1% to 1.0206, USD/JPY fell 0.1% to 134.90, AUD/USD fell 0.2% to 0.6976.

GBP/USD rose 0.1% to 1.2086, with the pound sterling traders focusing on Friday’s release of U.K. GDP for June, which is expected to slow down at 1.2% on the month as the country struggles with rising interest rates and surging inflation.

“Weaker activity will highlight the BoE’s call of the U.K. entering a recession in 4Q22 and contracting 2% over the five subsequent quarters.  Sterling probably has not sold off more since investors do not quite know what to do with a reserve currency that will be backed by rates at 2.25% if we are correct with our BoE call for the September meeting.” ING said.

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