Forex overview. US Dollar: A Higher Bar for Bearish Bets – ForexNews.PRO
Yesterday’s US inflation data failed to support expectations of a dovish Federal Reserve, causing a rebound in the previously oversold US dollar. We anticipate further hawkish adjustments in the coming weeks, which could lead to an increase in the dollar’s value. Today, attention will be focused on the US Producer Price Index (PPI) and the Federal Reserve’s Beige Book. In the UK, services CPI exceeded forecasts, but the upcoming jobs report will be crucial for the British pound.
USD: The Enduring Impact of Inflation Reality Following the US CPI release, the dollar experienced its strongest day in a month, reaching a three-week high. The market’s reaction of selling Treasuries and buying dollars might seem counterintuitive, considering that the core CPI month-on-month figure was 0.1% below consensus and the headline rate matched expectations at 0.3% MoM.
However, this reaction is justified by the market’s pre-CPI dovish stance, which was based more on speculation about President Trump’s influence on the FOMC rather than actual data or Fed Chair Powell’s statements. Only a significantly lower inflation reading could have validated those dovish expectations.
We concur with the economic consensus that the impact of tariffs on inflation will become more apparent in the next three months. From now on, markets will find it more difficult to justify bets on a September rate cut unless the jobs data deteriorates significantly.
From a foreign exchange perspective, the dollar’s outsized rebound was likely triggered by an overextended short position. However, yesterday’s reality check on Fed rate cut speculation could have a lasting impact by making it more difficult to justify dovish adjustments. Therefore, we believe the risks remain skewed towards a stronger dollar. After all, markets are still pricing in 14 basis points for the September Fed meeting.
