Dollar Bears Look to Soft CPI Numbers for Rate Hike Relief

The US July CPI release will be a key indicator for dollar bears hoping to see softer inflation numbers that would lead the Fed to delay a September rate hike.

Consensus expects a subdued set of numbers, with headline inflation at 0.1% month-on-month and core inflation at 0.2%, which would bring year-on-year rates down to 3.4% and 2.5% respectively, inching closer to the Fed's 2% target.

A soft number could drag market pricing of a September Fed rate hike from 50% probability in favor of no change, leading to a bullish steepening of the yield curve and a softer dollar, particularly against procyclical currencies.

Meanwhile, President Trump's potential move to cut the Capital Gains Tax ahead of the midterms could be a mild dollar negative from a pro-risk perspective.