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Dollar stays rangebound unless CPI sparks more Fed hike bets
OCBC said core CPI would need to reach at least 0.3% month over month in July to materially lift expectations for a September rate hike.
OCBC analysts Sim Moh Siong and Christopher Wong said the US dollar softened recently as Fed hike expectations moderated and the US yield curve steepened.
They argued that without a strong upside surprise in upcoming US CPI, the USD is likely to remain trapped in narrow trading ranges, and that a rangebound currency should continue to support carry trades.
OCBC also pointed to additional catalysts for the Fed outlook, noting that the next inflation reading could be decisive for expectations, alongside upcoming US PPI and retail sales.
On policy risk, the analysts cited renewed scrutiny of Fed independence, including a reported attempt by the Trump administration to remove Fed Governor Lisa Cook, whose response deadline is 26 August, and reporting that President Trump has maintained frequent contact with Fed Chair Kevin Warsh; they added that debasement concerns have helped gold rebound from a floor near USD 4,000 per ounce.
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