The US Dollar is trading near a three-month low as markets prepare for two closely linked tests of the Federal Reserve outlook: July's inflation data and Fed Chair Kevin Warsh's address at Jackson Hole later this week.
US inflation returns to the centre of the market conversation today, with investors looking to the latest Consumer Price Index (CPI) report for clues on what the Federal Reserve might do in September. Economists expect headline inflation to ease slightly to 3.4% year on year in July, from 3.5% in June, while core CPI, which excludes food and energy, is forecast to slow to 2.5%. On a monthly basis, headline prices are expected to rise 0.1%, with core prices increasing 0.2%.
Investors are awaiting today's release of the US ISM Services Purchasing Managers' Index (PMI), one of the most closely watched indicators of economic activity. Economists expect the index to come in at 54.0, a level that would signal continued expansion in the services sector. Any reading above 50 indicates that business activity is growing, while a figure below 50 points to contraction. Given that services account for around 70% of the US economy, the report is considered one of the clearest monthly indicators of underlying economic momentum.
Investors are focused on today's Federal Reserve policy decision, with interest rate futures indicating a 70.6% probability that policymakers will leave rates unchanged at 3.50% to 3.75%. Markets continue to assign a 29.4% probability to a 25-basis-point increase, highlighting that some uncertainty remains despite expectations favouring a pause.
US inflation slowed to 3.5%, strengthening expectations that price pressures are easing and prompting markets to reassess the Federal Reserve's policy outlook. The latest CPI data weighed on the US Dollar, supported gold and lowered Treasury yields.