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Soft US CPI could sap September Fed-hike odds and weigh on the dollar

ING expects July CPI to show 0.1% month-on-month headline and 0.2% core inflation, with a soft print potentially weakening the dollar versus procyclical currencies.

Reported · Written up by our desk · Major Pairs

ING’s Chris Turner says the July US CPI release is likely the key near term driver for the Federal Reserve’s next move, with consensus expecting subdued inflation readings that continue to edge toward the 2% target.

Turner pointed to a soft CPI outcome as a catalyst for lower market pricing of a September rate hike, noting that a core print of 0.1% month-on-month would likely drag back implied odds of a hike from about a 50% probability toward no change.

He also linked a softer inflation profile to rate market reactions, saying it could steepen the US yield curve and weaken the dollar, particularly versus procyclical currencies, with the DXY index currently watched in the 99.40 to 100.00 range.

ING expects the softer numbers to be supported by lower gasoline prices, broader rental deflation signals, and soft wages, and also flagged commentary that President Trump may be trying to advance a capital gains tax cut ahead of the November midterms, which could be mildly dollar negative depending on how the long end of the Treasury curve responds.

Latest closeGasoline (RBOB) $2.892 ▼7.8%

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