US Dollar Index Holds at 98.50 as Traders Await July CPI Data

DXY Steady as CPI Looms, Markets Brace for Inflation Surprise

The US Dollar Index (DXY) is hovering near 98.50 on Tuesday, as market participants await the release of the highly anticipated US Consumer Price Index (CPI) for July. The Greenback is trading flat after gaining 0.4% across the past two sessions, though sentiment remains cautious ahead of a report that could shape expectations around Federal Reserve policy.

The near-term trend for the Dollar remains bearish, but today's inflation data is widely expected to provide more clarity about the central bank’s next move. A hotter-than-expected CPI print could undermine hopes for a September Fed rate cut, potentially supporting the Dollar. Conversely, softer inflation could boost risk appetite and weigh on the USD.

Markets Expect Inflation to Tick Higher

Consensus forecasts call for headline CPI to increase to 2.8% YoY in July, up from 2.5% in June and 2.4% in May. Core CPI, which strips out volatile food and energy prices, is expected to rise to 3.0%, the highest level in five months.

“Markets are walking a tightrope between softer labor data and still-stubborn inflation,” analysts note. “A hot CPI print could reinforce the Fed’s hesitation to ease too quickly.”

While the Fed's recent dovish tone has encouraged speculation of rate cuts, today's data could shift expectations depending on how inflation pressures evolve. Should the data surprise to the upside, bond yields and the Dollar could rally.