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Warsh testimony and US CPI seen as key drivers for dollar moves
Action Forex says CPI and Warsh’s comments could shift odds for a July rate hike, with investors watching whether inflation is peaking or broadening beyond energy.
A key focus for markets this week will be Federal Reserve chair Kevin Warsh’s semi annual testimony to House and Senate lawmakers on Tuesday and Wednesday, with a fresh US CPI release scheduled about 90 minutes before his first appearance.
According to Action Forex, the setup puts Warsh’s outlook on inflation and potential Fed reforms directly in the spotlight, especially since both headline CPI and PCE have been above 4.0% and the core PCE price index has been trending up, reaching 3.4% in May.
Action Forex notes that while June data may offer some relief, including forecasts for headline CPI easing to 3.9% and core CPI holding at 2.9%, any hotter than expected CPI reading could revive expectations for a July rate hike, particularly in light of June meeting minutes describing price pressures as becoming more broadly based.
For the US dollar, Action Forex highlights two scenarios that could drive the currency, a hot CPI print paired with Warsh reiterating that inflation risks have come down, or a lack of exclusion of a July hike if he is asked about timing.