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- The US dollar began the week quietly, with traders awaiting key inflation and geopolitical events.
- Markets focus on July CPI data, with expectations influencing Fed rate cut chances and US dollar movement.
- Upcoming data and geopolitical tensions may cause volatility, making US dollar direction uncertain this week.
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The US dollar started the week quietly as traders waited for important events: July inflation data, the US-China trade deal deadline, and the Trump-Putin meeting on Friday. The US dollar showed small attempts to rise toward resistance at 98.5 but stayed just above 98 at the beginning of the week.
Last week’s weak employment data and the temporary appointment of Stephen Miran to the Federal Reserve raised hopes that interest rates might be cut in September. This helped explain the US dollar’s slow start to the week.
Inflation Data Takes Center Stage This Week
Markets are focused on the July consumer price index (CPI) data coming out tomorrow. Headline inflation, which has been rising since April, is expected to reach 2.8% in July, while core inflation is forecasted to rise to 3%. Deutsche Bank (ETR:DBKGn) (DB) predicts headline CPI will slow with a 0.1% month-on-month increase, while core CPI will rise by 0.21%, keeping the same pace as last month.
If the data comes in lower than expected, it could increase pressure on the Fed to cut interest rates and cause a sell-off in the US dollar. On the other hand, stronger-than-expected inflation might confirm the Fed’s tight policy and lead to a short-term bounce in the US dollar.
Meanwhile, US-China trade talks are at a critical point. With the August 12 deadline set by President Trump approaching, the market expects a new 90-day extension. This could boost risk appetite, but any new tariffs may raise inflation expectations. Also, NVIDIA (NVDA) and Advanced Micro Devices (AMD) have agreed to pay 15% of their China sales revenue to the US government, causing volatility in tech stocks.
At the end of the week, the news that President Donald Trump and Russian President Vladimir Putin will meet in Alaska on August 15 to discuss Ukraine has raised geopolitical tensions. A peace message from the meeting might increase risk appetite globally, but if not, demand for safe-haven assets will rise.
Packed Data Calendar This Week
After the inflation data, the producer price index (PPI) and weekly jobless claims will be released on Thursday. On Friday, retail sales, industrial production, and the University of Michigan consumer confidence index are scheduled. Alongside these, data from Germany’s CPI, UK’s GSYİH, Eurozone’s growth, and Japan’s GSYİH will also be closely watched.
This busy data week could lead to sharp and short-term moves in the US dollar. With both economic and geopolitical developments in focus, investor reactions may make it hard for the US dollar to find a clear direction against major currencies.
Though the index shows the recent downward trend has paused, there is no clear sign of increased demand for the US dollar yet. Uncertainty around tariffs leaves their impact on the US economy unclear. At the same time, recession fears linger after weak employment data, putting pressure on the US dollar. The ongoing tension between the Trump administration and the Fed raises concerns about the central bank’s independence.
July’s inflation data will be crucial for the US dollar’s path because it may influence the Fed’s interest rate decision in September.
US Dollar Technical Outlook
US Dollar recovery paused early this month at the key psychological level of 100. Last week, the index trended down but found some support near 98 after breaking below 98.50.
This week, if the US Dollar holds above 97.8, the 98.50 level will be important again. Staying above this could push the index back toward the 99.5 to 100 range. But if it fails to break past 98.50, selling pressure may increase, pushing the downtrend closer to 96.
Technically, short-term indicators suggest a bearish trend. Still, as long as the DXY stays above its rising support line from July, it could see upward moves. Inflation data above expectations and positive geopolitical news could help support a short-term rise in the DXY.
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