The US dollar strengthens after June CPI report

• The US dollar gained ground following the release of June’s Consumer Price Index (CPI), with the DXY exceeding the significant threshold of 98.00.
• Market sentiment remains tentative due to ongoing tariff threats from President Donald Trump.
• Headline CPI increased by 0.3% in June, raising the yearly rate to 2.7%, aligning with predictions.

The US dollar (USD) saw a noticeable increase on Tuesday after the June CPI report was published. While the gains were modest, the Greenback found itself supported by inflation data that met expectations, though core inflation was a bit softer than anticipated. This suggests that, while price pressures persist, the Federal Reserve may adopt a cautious stance regarding interest rate cuts for the time being.

The US Dollar Index (DXY) climbed to a three-week high, breaching essential resistance levels and reaching nearly 98.50 during the US session. This upward movement above the psychological barrier and resistance suggests a fresh bullish momentum, fueled by diminishing expectations for immediate Fed rate reductions. Still, the overall market tone remains cautious as the looming tariff threats from President Trump weigh on risk sentiment.

The June CPI report indicated a more pronounced rise in price pressures. Headline inflation escalated 0.3% month-on-month—the most significant increase in five months—bringing the annual rate from 2.4% in May to 2.7%. Both measures were consistent with market forecasts. On the other hand, Core CPI, which excludes the volatile food and energy sectors, rose by 0.2% month-on-month, slightly under the 0.3% projection from May’s 0.1% gain. Yearly, core inflation crept up from 2.8% to 2.9%, hinting at persistent underlying price pressures despite the softer monthly figure.

The report also indicated rising corporate prices in sectors influenced by energy, transport, and tariffs, suggesting that trade-related inflation could start affecting consumers.

Federal Reserve Chairman Jerome Powell has made it clear that tariff uncertainties have contributed to the Fed’s hesitation in cutting interest rates. He mentioned that the Fed is “waiting to see the full impact of tariffs” and intends to assess how these tariffs influence consumer prices and economic growth before making any policy shifts.

Some Fed officials believe that tariff-induced price increases might be temporary, while others express concerns that the inflation effects could become more entrenched, complicating short-term rate cuts.

Market Movement: Trump increases tariffs and critiques Fed’s Powell

• In response to the CPI report, President Trump urged for immediate interest rate cuts, stating, “Consumers are low. Please lower the Fed rate now!!!” claiming that a rate reduction could save over $1 trillion annually on interest payments. This adds more political pressure on the Federal Reserve, even if inflation surpasses its target, as markets still anticipate only limited easing.
• On Monday, Trump announced plans to impose “very strict tariffs” (potentially up to 100%) on Russian exports if a peace deal concerning Ukraine isn’t reached within 50 days. Additionally, he warned of “secondary tariffs” on countries trading with Russia, especially targeting those importing Russian energy. The objective is to economically isolate Moscow and pressure its economic partners, escalating uncertainties in the global market and heightening concerns about the supply chain, especially in energy and commodities.
• The benchmark US 10-year Treasury yield stabilized at 4.43% on Tuesday, marking a month-long high as investors awaited the June CPI report. The sustained rise in yields reflects ongoing expectations that inflation may continue to rise due to tariff pressures, suggesting the Fed might delay interest rate cuts until there are clearer signs of cooling price growth.
• This week marks the start of the second quarter earnings season, with major banks like JPMorgan, Citigroup, and Goldman Sachs set to report. Investors are focused on the implications of rising costs and trade tensions on corporate performance. Analysts forecast a modest year-over-year revenue growth of around 5.8%, significantly lower than the 10.2% estimate from early April, further highlighting the effects of tariff-related uncertainties on profits.
• Trump has once again targeted Fed Chairman Powell, calling him a “knucklehead” and criticizing rate increases, arguing they should be closer to 1%. He claims that Powell is damaging the economy by not cutting rates more aggressively. Furthermore, Trump’s remarks hint at a scrutiny of the Fed’s recent $2.5 billion headquarters renovation as potentially excessive, suggesting he could dismiss Powell “for cause.”
• The Supreme Court has indicated that a president cannot remove the Fed’s chair solely for policy disagreements or mistakes. Still, Kevin Hassett, director of the White House National Economic Council, mentioned that the matter is “under investigation” to determine if it constitutes sufficient cause.
• Rumors, according to the Washington Post, suggest that Hassett could be a leading candidate to replace Powell as the next Federal Reserve Chair. He is in line with Trump’s push for lower rates and is seen as lacking policy independence.
• Traders will be closely watching speeches from various Fed officials later today, amid stronger-than-expected US inflation data. Richmond’s governor, who includes Michael Barr and Michelle Bowman, along with President Tom Birkin, will discuss these recent developments. As the next FOMC meeting approaches, any shifts in tone could influence interest rate expectations and the US dollar’s short-term direction.

Technical Analysis: DXY confirms bullish breakouts above 98.00

In the past couple of weeks, the US Dollar Index (DXY) has been on an upward trend, supported by a nine-day moving average of 97.70. After a consolidation period, the index has firmly broken out of a falling wedge pattern, surpassing the critical resistance level of 98.00 and heading toward 98.55 during the American session. This breakout signifies ongoing short-term bullishness and opens the possibility for a rally toward 98.80-99.00 in the upcoming sessions.

Momentum indicators are starting to look more promising. The relative strength index (RSI) has climbed to 57.23, signaling growing buying interest as the breakouts pick up steam. Nevertheless, it’s still early in the trend and may require further validation, especially since the mean directional index (ADX) is relatively weak at 12.44. With the inflation data now out, market focus has shifted to sustained buying pressure, particularly whether DXY can maintain its momentum above the wedge formation. Current immediate support levels sit at 98.00, followed by the nine-day EMA at 97.70.