Dollar gains ahead of CPI 💵

• Bloomberg Economics expects July core CPI to post the fastest monthly gain since January, potentially undermining the chances of a September rate cut.

• Core goods inflation is forecast at +0.4% m/m, as deflation in the auto segment (both new and used) fades.

• Renewed inflationary pressure in services—especially hotels and airfares—and persistently high rent growth are seen boosting the core measure.

• Before the release, markets are pricing in roughly an 85% probability of a September Fed rate cut.

Soon we will get the most important report of the week—the July CPI release. For the Fed, it will be a crucial reading ahead of the September meeting, which will also be preceded by the NFP labor market report and the August CPI (published in the same week as the Fed decision).

• Consensus expects headline CPI to rise around +0.2% m/m and 2.8% y/y; for core CPI, about +0.3% m/m and ~3.0% y/y for July. A 0.3% m/m increase in core would be the strongest monthly pace in roughly 6 months.

Market forecasts are not optimistic, and the dollar is strengthening ahead of the decision. Bloomberg Economics expects a clearly higher core inflation print in July and potentially the fastest monthly growth since January.

This strong rebound is set to be driven by travel-related services and still-elevated rents. Data indicate that hotel and airfare prices are likely to swing back into positive territory after earlier declines, while the disinflation process in rents remains slow.

On the core goods side, the forecast calls for about +0.4% m/m, with the automotive segment being the key factor—both new and used cars are expected to see smaller price declines, limiting the negative goods contribution to the core index seen in recent months.

Tariffs’ impact on CPI

Tariffs remain the main unknown for goods inflation in the coming months; historically, their impact on import prices has been significant, though the Fed views this more as a one-time upward shift in price levels than a lasting trend.

Although tariff pass-through to consumer prices appears smaller than earlier this year, Bloomberg estimates it will not offset the short-term surge in services. In practice: if the July reading is high, it will complicate arguments for immediate policy easing, even though markets still expect a rate cut at the September 16–17 meeting.

What is the current stance of Fed policymakers?

• Powell: Tariff-related inflation could be “short-lived” (level shift) but could also prove more persistent; Fed has “made no decision for September” and will wait for the next two inflation and employment reports.

• Waller: Voted against a cut in July but presented arguments for starting easing if the labor market continues to weaken and tariff-driven inflation risks remain contained.

• Daly: Believes cuts will be needed “in the coming months” as the labor market cools; monitoring tariff impact but doesn’t see it as a barrier if the inflation trend is favorable.

• Bowman: Publicly supports three cuts in 2025 after weak labor data, showing that employment conditions are strongly pulling the Committee toward an initial move.

EURUSD (M15)

The pair remains in a narrow consolidation channel ahead of the CPI release. The dollar is slightly weaker intraday against most currencies, with declines limited to 0.0–0.05%.