US Dollar Index: Range-bound Dollar as Fed odds ease – BBH

The US Dollar Index (DXY) is currently trading near the lower end of its recent 99.50-100.00 range as expectations for a September Federal Reserve rate hike have decreased. This decline in expectations is primarily due to a cooling United States Consumer Price Index (CPI) and Producer Price Index (PPI) in July, which has reduced the likelihood of a rate hike to nearly 30%, the lowest since the June 17 FOMC decision.

This shift in sentiment has kept the USD in check and boosted risk appetite, despite ongoing geopolitical tensions between the US and Iran.

Today's US economic data releases, such as the retail sales report and the University of Michigan sentiment survey, are expected to have little impact on Fed fund futures pricing. The FOMC participants are more divided over the persistence of inflation concerns than on the broader US growth outlook.

Key economic data expected in the coming weeks include the US retail sales report for July (released at 1:30pm London, 8:30am New York), which is anticipated to show a 0.1% month-over-month (m/m) increase, compared to 0.2% in June. However, the policy-relevant control-group sales, which excludes cars, gas, food services, and building materials, are expected to rise by 0.3% m/m, aligning with resilient real consumer spending despite the headline CPI increasing by 0.1% m/m.

Another important economic indicator is the August University of Michigan sentiment survey, scheduled for release at 3:00pm London, 10:00am New York. This survey is expected to keep long-term inflation expectations unchanged at 3.3% for the third consecutive month.