US CPI Data Release to Impact Dollar, Inflation Rate Expected
The CPI data release will provide insight into the US economy's inflation trend, influencing the Fed's interest rate decisions and the direction of the US Dollar. A higher-than-expected inflation rate could lead to a stronger dollar, while a lower-than-expected rate could result in a weaker dollar, making the data a key factor in the financial markets.
The dollar is hovering near a three-week high against major peers, driven by elevated Treasury yields and anticipation of US inflation data, which is expected to show a 2.7% annual headline inflation rate, influencing the Federal Reserve's monetary policy decisions.
The release of the US CPI data is expected to show inflation increased further in June, reinforcing the Fed's cautious stance, with the Consumer Price Index (CPI) forecast to rise 2.7% YoY in June, accelerating from May's 2.4% growth. The core CPI inflation, excluding food and energy, is expected to rise 3% YoY, compared to 2.8% in May.
The data will impact the direction of the US Dollar as it is a key indicator for the Fed's interest-rate path ahead. Markets will look for signs of Trump's tariffs feeding through into prices, and the data has a significant influence on the Federal Reserve's interest outlook for this year. An upside surprise in the monthly core CPI reading could revive expectations of only one Fed rate cut this year, weighing on EUR/USD.
The US dollar index (DXY) has bounced off 4-year lows, rising to around 98.00 as traders await June's inflation data. The greenback's rivals, including the EUR/USD, GBP/USD, and USD/JPY, have pulled back. The upcoming CPI data is expected to show a 2.6% annual increase in consumer prices, which could complicate the Fed's decisions on interest rates.
If the data surprises to the upside, it could make it harder for the Fed to stick to its easing roadmap, potentially leading to a stronger dollar. However, dovish surprises or weak data could reopen the floodgates for a fresh dollar dip, making the US CPI data release a crucial event for the financial markets.