US Dollar Held Steady Ahead of Critical July CPI Report

Markets are in a holding pattern ahead of today's critical US July CPI report. The print will be a key swing factor for Fed funds rate expectations and set the tone across rates, currencies, and broader risk sentiment.

The US Dollar (USD) has been relatively steady as investors await the CPI data, which is expected to firm modestly but stop short of signaling a renewed acceleration in inflation. Fed funds futures currently price in 50% odds of a 25bps hike in September to a target range of 3.75-4.00%, down from a high of 75% end-July, and just over 40bps of cumulative tightening in the next twelve months.

Elias Haddad of Brown Brothers Harriman notes that 'a soft US CPI would strengthen the case for a dovish repricing in Fed hike expectations and further undermine USD while lifting risk assets.' On the other hand, if the data is hot, it will likely deliver a kneejerk USD bounce via higher front-end yields.