Frank Walbaum

The US dollar was steady on Tuesday, consolidating after recent volatility as markets awaited the July CPI report for guidance on the Federal Reserve’s policy outlook. Headline CPI is expected to increase 0.2% on the month, while the annual rate is seen accelerating to 2.8%. Core CPI is also projected to rise to 0.3% and 3% on a monthly and yearly basis, respectively.

Market pricing continues to reflect nearly an 85% probability of a September rate cut and a total of three rate cuts by this year’s end, despite signs of persistent inflation. A weak July nonfarm payrolls report and recent dovish remarks from Fed officials have reinforced expectations for policy easing. However, any upside surprise in today’s data could challenge these expectations and provide a modest lift to the greenback.

US Treasury yields remained relatively stable as investors await the release of inflation data. Yields could see a rebound if inflation comes out higher than expected, pushing for a revision of monetary policy expectations. However, a softer read could push yields further down.

Walbaum is Market Analyst at Naga