Softer inflation data may limit US Dollar upside
The Fed is likely to deliver a hawkish hold, with markets pricing at least one rate hike by year-end. Recent declines in energy prices and a softer June inflation print reduce the odds of an immediate hike.
The market expects at least one interest rate hike from the Fed by the end of the year and sees a chance that more could follow next year. A correction in the USD is possible if the market scales back its expectations.
A drop in energy prices and a low June inflation rate make it unlikely for the Fed to adopt an extremely hawkish stance. This limits upward pressure on the US Dollar driven by rising expectations of interest rate hikes.