Dollar Bears Pin Hopes on Soft July Inflation Data
The US dollar is under pressure as investors await the release of the July inflation data. Bears are hoping for a soft reading that would rule out a September rate hike by the Fed, leading to a benign decline in the dollar and support for risk assets.
Friday's weak US employment report did not have a significant impact on the dollar. The prevailing view is that inflation trends will drive the next Fed move, and today's data could provide the necessary catalyst. Consensus forecasts are expecting a 0.1% month-on-month increase in headline inflation and 0.2% for core inflation.
A soft reading would likely drag market pricing of a September rate hike away from a 50% probability, making no change more likely. This could lead to a bullish steepening of the yield curve, causing the dollar to soften against procyclical currencies.