US Dollar falls ahead of US CPI with expectations going through the roof

LONDON (August 14) The US Dollar (USD) trades lower again, as measured by the US Dollar Index (DXY), in the European session on Wednesday following a 0.50% decline a day before. The US Dollar snapped under pressure after a massive wave of risk-on pushed US equities higher and sent US yields lower on Tuesday. The biggest reason for that move was weaker Producer Price Index (PPI) data on all fronts and segments in July, which hypes up the upcoming consumer inflation number with elevated expectations of coming in softer than expected. 

On the economic data front, the US Consumer Price Index (CPI) for July will be key on Wednesday. If the PPI data from Tuesday holds any relevance, traders will want to gear up for some volatility going into the US CPI number. Ahead of the US data, Europe will release the preliminary Gross Domestic Product (GDP) for the second quarter, which might also move the US Dollar Index.   

Daily digest market movers: CPI expectations looking one way

• The US Dollar is falling against the Euro, pushing the pair to 1.1029 in EUR/USD for the first time since January 2024 ahead the US CPI release.
• Japan must seek a new prime minister as Fumio Kishida does not want to run for a second term.
• The Reserve Bank of New Zealand (RBNZ) surprised the market with a 25 basis point interest rate cut during the Asian session on Wednesday and the message that the cutting cycle has started. RBNZ Chairman Adrian Orr even said that a 50 basis point cut was on the table for this meeting. A comment that sent the New Zealand Dollar 1% lower against the US Dollar. 
• At 11:00 GMT, the Mortgage Bankers Association (MBA) will release its weekly Mortgage Applications Index for the week ending August 9. The previous week, it was up 6.9%
• At 12:30 GMt, the US consumer inflation data for July will be released:
  • Headline monthly CPI inflation is expected to rise by 0.2% in July following the -0.1% the month before. The yearly benchmark is expected to remain at 3.0%.
  • Core monthly CPI inflation is expected to increase by 0.2% after the 0.1% in June. The yearly gauge is expected to soften to 3.2% from 3.3%.
• Equity markets are rallying higher in Japan based on the political news that a new prime minister needs to be found. The Topix trades up over 1%, while the Nikkei lags by 0.4%. European equities are up less than 0.5%, while US futures are flat, awaiting the US CPI release. 
• The CME Fedwatch Tool shows a 47.5% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 52.5% chance for a 50 bps cut.  Another 25 bps cut (if September is a 25 bps cut) is expected in November by 31.5%, while there is a 50.8% chance that rates will be 75 bps below the current levels and a 17.7% probability of rates being 100 basis points lower. 
• The US 10-year benchmark rate trades at 3.84% and slips further away to fresh lows for this week.

FXStreet