USD Dips Just Before CPI Data—Is a Market Shakeup Looming That Could Make or Break Your Portfolio?

Ever wonder if the US Dollar is on a non-stop treadmill or just catching its breath? Monday kicked off with the USD trading a bit soft, yet the Dollar Index (DXY) showed a surprising resilience—pushing its streak to ten consecutive sessions of gains. Now, here’s the kicker: history and a savvy rule of thumb suggest that currency moves this stubborn rarely last beyond 10-12 sessions without hitting a wall. And tech resistance around 98.25//30 is staring the DXY right in the face—thanks to that little June glitch sparked by Middle East ceasefire whispers. But hold on—while things might seem like a snooze fest in the FX market during summer’s lull, this week’s US inflation data is poised to shake things up. Sticky prices and tariff uncertainties keep the Fed on edge, reluctant to loosen the reins. So, if inflation keeps creeping at 0.3% month-over-month, we’re staring at a year-end headline inflation potentially north of 3%—no small potatoes for Fed policy or market confidence. The White House’s barbs at the Fed Chair? Oh, they’re just adding spice to this simmering stew. All signs suggest that while the USD might stumble, gold could be gearing up for a bull run above $3425. Intrigued? This rollercoaster isn’t slowing anytime soon. LEARN MORE

The US Dollar (USD) started trading Monday on a soft note but the Dollar Index (DXY) ended up a little firmer on the day overall, extending its run higher for a tenth consecutive session, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD broadly lower ahead of CPI

“The USD is trading lower against a broader range of currencies this morning but remains at some risk of dropping back a little or at least consolidating the July rebound. My informal rule of thumb holds that it is very rare for developed currency moves to extend (higher or lower) for more than 10-12 sessions on the bounce. The DXY may be running into more significant technical resistance now as its nears resistance around 98.25//30, a small gap that opened on the chart in late June when the USD dipped on Middle East ceasefire talk.”

“While markets appear to have something of the summer doldrums about them, this week’s US data should help drive a bit more volatility in FX. June CPI data today are expected to rise 0.3% in the month, according to the street (Scotia forecasts +0.2%), for a 2.6% gain in the year (up from 2.4% in May). Core prices are also forecast to rise 0.3% for a 2.9% gain in the year (also up from May’s 2.8%). Sticky prices will support the Fed’s reluctance to even consider easing policy while there is still so much uncertainty around where tariffs will land (and what the impact on price trends will be ultimately).”

“If CPI were to persist at a 0.3% M/M clip, headline inflation would track higher to 3/3.1% by year-end, we estimate. Even if the data miss on the downside today, the Fed will want to see a sustained period of low prices before cutting. Whatever the outcome, White House’s attacks on the Fed Chair are likely to continue. Rising US inflation swaps may reflect waning market confidence in the Fed’s ability to curb prices, something that should ultimately weigh on the USD and perhaps reinvigorate the bull run in gold (above $3425).”