Dollar Rangebound Ahead of Pivotal CPI Release

The US Dollar traded in a rangebound manner as markets awaited the release of the Consumer Price Index (CPI) data, which is expected to be pivotal for September Federal Open Market Committee (FOMC) pricing. The dollar's performance was mixed, with conflicting Middle East headlines and hawkish Federal Reserve rhetoric offsetting each other.

The NFIB Small Business Optimism Index rose to 99.8 in July from 97.4 in June, beating consensus expectations of 97.5 and reaching its highest level since August 2025. The improvement was driven by a sharp rebound in hiring intentions, contrasting with last week's softer payrolls report.

Sim Moh Siong and Christopher Wong at OCBC expect the CPI release to be a key catalyst for market pricing ahead of the September FOMC meeting, which is currently viewed as a near-even split between a rate hike and a hold. A July core CPI reading of 0.3% MoM or higher, above the 0.2% consensus forecast, would likely strengthen expectations of a September hike.

Despite persistent volatility in oil markets and ongoing FX intervention risks surrounding the JPY, OCBC sees a generally supportive risk environment that should continue to underpin carry trades, with a range-bound USD being a major factor.