US Dollar: CPI keeps USD in tight ranges – OCBC
OCBC’s Sim Moh Siong and Christopher Wong note the US Dollar (USD) softened as Fed hike expectations moderated and the US yield curve steepened.
US Dollar (USD) prices remained in tight ranges as Federal Reserve (Fed) anticipation of interest rate hikes slowed down and the US yield curve steepened, according to OCBC’s Sim Moh Siong and Christopher Wong. The US Consumer Price Index (CPI) is expected to play a crucial role in determining whether the USD will stay rangebound and support carry trades.
Gold saw a rebound from its near-term floor near USD4,000/oz, driven by concerns about US dollar devaluation and increased scrutiny of Fed independence. Two recent developments have reignited debates over the Fed's autonomy: the Trump administration's attempt to remove Fed Governor Lisa Cook and the frequent contact between President Trump and Fed Chair Kevin Warsh.
The upcoming US CPI, Producer Price Index (PPI), and retail sales data will influence Fed expectations. Unless the July CPI report provides a significant upside surprise, the USD will likely remain in narrow ranges. The Fed may remain patient beyond September, with markets unlikely to price a September hike without a stronger inflation signal.
Core CPI would need to exceed 0.2% consensus forecast with a reading of 0.3% MoM or higher in July to materially boost expectations of a September rate hike. Despite oil prices easing due to hopes of reopening the Strait of Hormuz, Iran's stringent conditions for Washington suggest limited near-term energy supply boost. Debasing concerns have resurfaced, putting additional pressure on the USD and helping gold rebound from what appears to be a floor near USD4,000/oz.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
