US Dollar Prices Benefit from Released Data: What’s Next?

Worrying Inflation Levels

The U.S. Consumer Price Index report for June showed an increase in in the YoY CPI headline from 2.4% to 2.7%, and the YoY core CPI (excluding food and energy) from 2.8% to 2.9%. This data signals the early effects of tariffs imposed by the new Trump administration on the broader economy.

While the increase was largely driven by higher inflation in the services sector, the report also noted a return of upward pressure on prices for goods such as food. Although the rise is not yet significant, it warrants close monitoring.

How Could the CPI Data Influence the U.S. Monetary Policy?

The rise in U.S. inflation has validated the Federal Reserve members’ approach of adopting a “wait and see” stance on economic performance before cutting interest rates. This supports the continuation of a cautious policy, despite increasing pressure from President Trump, who has repeatedly called for swift rate cuts since taking office last January.

Several key factors are contributing to the Fed’s cautious approach:

Dual Mandate: U.S. monetary policy is guided by the dual objectives of price stability and maximum employment. Inflation is currently moving in the opposite direction of what would justify rate cuts, while the labor market remains resilient, with jobs and unemployment data still relatively healthy.

Temporary Business Measures: Companies have been mitigating the impact of tariffs by stockpiling goods in advance and accepting slimmer profit margins to avoid passing costs onto consumers. However, these are temporary measures. As inventories deplete, prices are expected to rise again, potentially weakening consumer demand.

Escalating Tariff Threats: The Trump administration is preparing to impose new tariffs on several countries, effective early August, ranging from 20% to 50%. Additionally, President Trump has announced potential tariffs on copper imports, pharmaceuticals, and semiconductors, which may also be implemented as early as August.

Expectations for The U.S. Interest Rate Cuts This Year

Given the likelihood of sustained inflationary pressure in the coming months, markets have adjusted their expectations, scaling back from three to two rate cuts in 2025. Investors are now awaiting more clarity from upcoming inflation and labor market data. This shift has provided support for the U.S. dollar, which strengthened following the release of the June CPI report.

So far, two rate cuts remain priced in for the following reasons:

Service Sector Inflation May Ease: Previous inflation increases were largely driven by the services sector, which is less sensitive to tariffs. If service sector inflation moderates, it may offset upward pressure from commodity-based inflation.

Fed Flexibility: The Federal Reserve does not require inflation to fall to 2% before initiating rate cuts. Decisions are data-dependent and can be adjusted based on evolving economic conditions.

EUR/USD May Face Further Losses

On July 15, the EUR/USD pair broke below the uptrend line originating from the May 12 low, and it now appears poised to test the low end of its current trading zone located between 1.1715 and 1.1510.

A daily close below 1.1510 would signal a potential trend reversal and open the door to a correction toward 1.1176. In this scenario, support levels at 1.1465 and 1.1344 should be closely watched.

Key levels to watch in a Bullish scenario

A daily close above 1.1715, the high end of the current trading zone signals that the uptrend remains intact, potentially driving the EUR/USD toward 1.2000. In this case, resistance at 1.1838 should be monitored closely.

EUR/USD – Daily Price Chart

Chart Source: ADSS Platform