USD Gains Ahead of US CPI as Markets Brace for Potential 0.4% Core Inflation Print

USD Strengthens Ahead of CPI Report and Geopolitical Developments

The US Dollar (USD) strengthened ahead of Tuesday’s much-anticipated Consumer Price Index (CPI) release, as traders reposition ahead of key economic data and respond to a mix of geopolitical signals. Market expectations are now slightly tilted toward a hotter-than-consensus CPI print, with some analysts forecasting 0.4% month-over-month core inflation, above the 0.3% market consensus.

This figure, if realized, would push year-over-year core inflation to 3.1%, up from 2.9%, while headline CPI is expected to rise from 2.7% to 2.9% YoY.

Short Covering, Tariff Delay, and Lowered Summit Expectations Support USD

The recent USD momentum comes amid profit-taking on crowded short positions, particularly as positioning had been heavily skewed against the greenback. Additionally, President Trump's decision to extend the US-China tariff pause by another 90 days has supported sentiment.

Trump also tempered expectations surrounding Friday's US-Russia summit, calling it a “feel-out meeting” and warning that “that’ll be the end” if no agreement is reached. Markets had priced in a more optimistic outcome, so this recalibration may have contributed to a mildly defensive bid for USD.

Data Remains the Main Driver for USD Direction

Despite geopolitical sensitivity, analysts emphasize that economic data remains the key driver for USD performance, especially in relation to the Federal Reserve's interest rate path.

“We’re expecting a 0.4% MoM core CPI print today, slightly higher than the 0.3% consensus,” analysts note. “Even after some pre-release positioning rebalancing, a hotter-than-expected print should still be dollar-positive, as markets may revise below 20bp expectations for a September Fed cut.”

Still, they warn that labour market weakness may weigh more heavily on Fed decisions than inflation alone—especially given the view that tariff-driven inflation is transitory. Recent payroll revisions and soft jobs data could justify a rate cut in September, even if today's inflation report surprises to the upside.