USD and yields firmer ahead of US CPI

The USD has remained bid today heading into today’s pivotal US CPI where both the headline M/M and Y/Y figures are expected to show an increase over Julys readings. This is the last major inflation figure before next weeks FOMC meeting where the Fed is widely expected to hold rates (Fed Funds futures pricing in only a 7% chance of a 25bp hike).

A beat on CPI today is unlikely to sway the rate hike odds much but it will cast doubt on any narrative that the Feds work on inflation is done. A CPI coming inline with expectation or higher will likely see a reasonably hawkish FOMC statement and presser, where despite unchanged rates, the Fed may give a dot plot projection indicating one more hike this year.

DXY has rallied in today’s session after yesterday’s whipsawing price action, with the upward trendline holding as support. US 10-year yields have also rallied to move towards the August highs as traders brace for a higher CPI and more hawkish Fed as a result, higher yields also a tailwind for the USD. Headwinds for the DXY will be the 105+ resistance zone which has capped further gains in DXY for the last 12 months, also 10-year yields in the recent past finding a lot of resistance when over the 4% level.