MUFG: US CPI report to determine whether sell-off will extend further - FJElite

The US dollar has stabilized at weaker levels ahead of the release today of the latest US CPI report for July. The dollar index has been trading just below the 100.00-level since the sell-off at the end of last week triggered by the much weaker nonfarm payrolls report for July. The lack of follow through for US dollar weakness at the start of this week highlights that market participants are waiting to see if today's US CPI report will further dampen expectations for a Fed rate hike as soon as September. The US rate market is currently pricing in around a 50:50 probability of a Fed hike in September. A 25bps hike had been fully priced in ahead of the July FOMC meeting. The recent scaling back of Fed rate hike expectations has contributed to the 2-year US Treasury bond yield falling back around 15bps from the high of 4.37% on 23rd July. Market participants will be closely scrutinizing today’s US CPI report for July to see if there is further evidence of disinflation pressures after the June CPI revealed muted underlying inflation pressures. Core inflation in June was surprisingly flat on the month and the weakest monthly reading since during the initially COVID shock in early 2020.