USD: Inflation and Powell in focus this week – ING

The dollar is modestly stronger out of the weekend as a surprise win of the left-wing alliance in the French second-round legislative elections sent European currencies lower and fuelled some safe-haven demand, with the Japanese Yen (JPY) and Swiss franc (CHF) rising, ING’s analyst Francesco Pesole suggests.

Inflation and Powell to drive the market

"This week will be a hot one for US macro, with the CPI report for June out on Thursday. We expect the core print at 0.2% month-on-month, in line with consensus, which should be enough to keep markets betting on a September rate cut, which is now 83% (19bp) priced in."

"We are also seeing the pricing for total easing in 2024 starting to inch above 50bp again. The weakening trend in the US jobs market will, in our view, push FOMC to cut three times this year, starting in September. This week also sees Federal Reserve Chair Powell’s testimony to Congress (Tuesday-Wednesday), that we expect to be on the dovish side after an excessively hawkish revision in the June Dot Plot projections."

"All in all, we expect the macro story to keep pointing to a USD decline, but political developments in the eurozone and the US mean that only a few currencies can benefit from it. By extension, the downside risks for the Euro-heavy DXY index may be relatively limited. Today’s US data calendar is rather quiet, and there are no scheduled FOMC speakers."