Markets await July CPI print, which could shift Fed rate expectations and USD trends amid modest inflation forecasts.
Markets remain steady ahead of the US July Consumer Price Index report, a key driver for Federal Reserve rate expectations and the dollar. Fed funds futures currently price a 50% chance of a 25bps hike in September to 3.75-4.00%, down from 75% in late July, with 40bps of tightening expected over the next year.
Headline CPI is forecast to rise 0.1% month-over-month, easing to 3.4% year-over-year from 3.5% in June. Core CPI is expected to increase 0.2% month-over-month, up from 0.0% in June. A softer print could reinforce dovish Fed repricing, weakening the dollar and boosting risk assets, while a hotter reading may trigger a short-lived USD rally.
Analysts note limited scope for a hawkish repricing even if inflation surprises to the upside, given the Fed’s already restrictive policy stance, with a neutral rate assumed at 3.00%.