US Dollar Vulnerable to Soft July CPI Print

ING's Chris Turner expects the US Federal Reserve's next move to be influenced significantly by the July Consumer Price Index (CPI) release. The consensus forecast is for subdued headline and core readings, with month-on-month increases of 0.1% and 0.2%, respectively.

These numbers would result in year-over-year rates of 3.4% and 2.5%, bringing them closer to the Fed's 2% inflation target. Turner attributes the expected softer numbers to lower gasoline prices, rental deflation, and soft wages.

A soft CPI print could reduce the likelihood of a September Federal Reserve rate hike, with market pricing shifting away from a 50% probability in favor of no change. Additionally, a steepening yield curve would lead to a dollar downturn, particularly against procyclical currencies.

However, Turner also mentions that talk is emerging about President Trump potentially launching a cut in the Capital Gains Tax before the midterms in early November. This could be a mild negative factor for the dollar from a pro-risk perspective.