US Dollar Volatility Ahead as Inflation Data Meets Middle East Tensions

Commerzbank's FX analyst Antje Praefcke forecasts that US inflation data for July will show only a 0.1% month-over-month increase, with headline and core rates dropping to 3.4% and 2.5% year-on-year.

This is attributed to the temporary easing of tensions in the Middle East conflict and lower gasoline prices in early July.

Praefcke believes that this data will make it less likely for the Federal Reserve to raise interest rates as soon as September, but market expectations may adjust based on the actual numbers and ongoing developments in the Middle East.

She notes that if the inflation data is weaker than expected, markets may scale back rate hike expectations, which could weigh on the US dollar. Conversely, a stronger-than-expected reading could boost expectations for a rate hike and support the dollar.