CPI Report Set to Tip Scales on Fed Rate Hike Decision

The upcoming US CPI report is set to release on August 12 and will provide crucial data for traders trying to gauge the Federal Reserve's next move. The current market expectation is a 50/50 chance of a rate hike in September, but the Fed's Chairman, Kevin Warsh, has been under pressure from some FOMC members who argue an immediate interest rate hike is needed to combat inflation.

The CPI report will be the first indication of which side of the FOMC was more in tune with the current economy. The market is pricing in a 50% chance of a rate hike next month, but traders are lacking clarity on what the Fed will do. Warsh's preference for less communication from the central bank has contributed to this uncertainty.

The US Dollar Index (DXY) has been showing signs of forming a near-term bottom and may benefit from a hotter-than-anticipated CPI report, while a soft reading would weigh on the greenback. The index has found support at 99.40 twice in August and is forming a bullish divergence with the 14-period RSI.