Dollar Treads Water After CPI Report Meets Expectations

The US Dollar saw a strengthening trend after the recent Consumer Price Index (CPI) report, which matched market expectations. Despite core inflation running at a 1.6% three-month annualised pace, markets remain hawkish on Federal Reserve tightening. The Fed's rate expectations still price in a 9bp hike for September and a full 25bp increase for December.

ING strategists Francesco Pesole, Frantisek Taborsky, and Chris Turner attribute the dollar's resilience to market positioning ahead of the CPI report. They note that markets had anticipated a slightly hotter print than consensus, which led to a small dovish repricing in Fed rate expectations.

The strategists believe that core inflation running at 1.6% three-month annualised weakens the case for Fed tightening. However, markets remain hawkish due to ongoing uncertainty and reluctance to price out further Fed tightening.