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Softer US inflation expectations weigh on the US dollar, Commerzbank says

Commerzbank said markets have cut pricing for Fed hikes by year end to about 1.2, down from around 1.7, after June headline and core CPI undershot consensus.

Reported · Written up by our desk · Central Banks

Commerzbank’s Volkmar Baur said softer US inflation has reduced expectations for additional Federal Reserve rate hikes, putting pressure on the US dollar.

In June, both headline and core inflation fell more than consensus, prompting markets to reprice the Fed path, with the expected number of hikes by year end dropping to roughly half of what had been previously anticipated.

Baur argued that improving productivity and AI related investment support a more wait and see stance from the Fed, which he said is likely to keep the dollar under pressure.

The note also pointed to a trade weighted US dollar drop of about 0.3% on the day, alongside a similar decline versus the euro, while higher oil prices tied to the Iran conflict may slow the adjustment in expectations.

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