ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note the Dollar remains under pressure after softer US CPI and PPI data, with FX volatility declining and Brent around $85. They argue markets may keep one Federal Reserve hike priced for this year, allowing the Dollar to edge lower across most pairs as other central bank expectations adjust.

Soft inflation keeps Dollar pressured

"The dollar has remained under pressure, with FX volatility resuming its decline after a short-lived bounce earlier this week. Brent settling at around $85/bl is seemingly not enough to drive inflation expectations much higher, and the USD front-end continues to feel some gravitational pull from soft June CPI data. PPI was also rather muted yesterday: -0.3% MoM for headline, 0.2% MoM for core."

"At the same time, the two-day testimony by Fed Chair Kevin Warsh and a speech by Chris Waller are warning markets against reading too much into one single inflation print. According to Waller, the disinflationary trend must be visible over a few months to call off hikes. Hardly a guarantee now that oil prices have risen again."

"All in all, markets may remain content with one Fed hike priced in this year. As some other central bank pricing catches up on the upside, the dollar might still be inching lower in most crosses."

"US retail sales for June are published today, and are expected to grow at 0.2% MoM after four very strong months. The Fed’s Logan and Schmid (both hawks) are scheduled to speak."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)