The dollar held tight ranges on Wednesday as traders waited for the July US CPI report to settle a widening debate over the Federal Reserve's next move. A weak jobs report has cut the odds of a September rate hike, but persistent price pressures and a sixth straight day of rising oil prices are complicating the picture.
The Dollar Spot Index ticked up 0.1% to 99.88 on Wednesday. The euro hovered virtually flat around $1.1545, with currency desks staying cautious ahead of a US inflation report that could decide whether the Federal Reserve holds rates steady in September.
The Japanese yen drifted near 159.40 per dollar, lingering close to two-week lows despite recent coordinated intervention by Japanese and US authorities. Currency markets are navigating a volatile macro environment shaped by conflicting economic data and divergent central bank guidance on inflation.
A jobs shock cuts hike odds
US nonfarm payrolls unexpectedly contracted by 23,000 jobs in July, alongside steep downward revisions to prior months. That dovish reading pulled the market-implied probability of a September rate hike down to roughly 48% from 67% just a week earlier.
However, sticky underlying price metrics and hawkish comments from several Fed officials point the other way. Several policymakers have warned that elevated services inflation and persistent energy risks could still require further tightening.
CPI carries outsized weight
Economists project headline CPI to rise 0.1% month-on-month in July, bringing the annual pace down to 3.4% from 3.5% in June. Core CPI is expected at 0.2% month-on-month and 2.5% year-on-year, down from 2.6%, according to Investinglive.
A softer print would confirm disinflation stays on track, giving the Fed room to hold rates in September. An upside surprise in core or services inflation, though, would revive rate hike bets and could trigger a dollar rally against lower-yielding peers.
According to Goldman Sachs: "We expect a 0.19% increase in July core CPI", a milder pace than the 0.2% consensus estimate. BofA said it expects US rates and the dollar to react more to a downside print than to an equally sized upside print.
Oil extends its sixth-day surge
Brent crude surged toward $90 a barrel after fresh attacks on shipping near the Strait of Hormuz, with Tehran warning the waterway will stay restricted until Washington meets its conditions for ending the conflict. The renewed surge in energy costs threatens to complicate inflation outlooks for major net-importing economies in Europe and Asia.
Sources: Investing.com, Investinglive
Trading involves risk.
Risk Disclaimer
