Markets maintain hawkish Fed expectations despite core inflation slowing to a 1.6% three-month annualized pace in July.
The US Dollar strengthened after July’s CPI report matched consensus, with headline inflation at 0.1% and core at 0.2% month-on-month. Markets had positioned for a hotter print, leading to a brief dovish repricing of Fed rate expectations before the Dollar rebounded on long rebuilding.
Core inflation’s three-month annualized pace slowed to 1.6%, yet Fed rate hike bets remain firm. September’s FOMC expectations still price in 9 basis points of tightening, with a full 25-basis-point hike anticipated for December. Recent jobs and CPI data trimmed just 5 basis points from September’s outlook.
Hawkish Fed communication continues to support the Dollar, limiting FX volatility ahead of the Jackson Hole Symposium. Next week’s FOMC minutes may provide further clarity on the Committee’s stance.