Dollar Sees Mixed Week as Inflation Remains Priority for Fed

The US Dollar (USD) had an unusual week, marked by geopolitical tensions and disappointing domestic data. Despite the usual back-and-forth between the US, Iran, and other parties, the Dollar saw its first-half performance boosted to monthly highs just beyond the psychological 100.00 barrier.

However, this momentum was short-lived as market participants digested in-line inflation data for July and some easing of weekly prints from the labour market. This led to a decline in expectations of potential tightening by the Federal Reserve (Fed) in the next few months.

The latest comments from Fed rate setters suggest that inflation remains the priority, with officials pointing to a continued hawkish policy bias. Beth Hammack argued that policy is not restrictive and that supply-driven price pressures have proved more persistent than expected.

Speculative sentiment towards the US Dollar strengthened markedly in the latest reporting week, with Commodity Futures Trading Commission (CFTC) data showing net long positions rising to 22.5K contracts from 17.2K previously. This increase in bullish conviction suggests investors have become considerably more committed to the Dollar.