US Dollar on cautious footing ahead of CPI data

• The US Dollar trades slightly lower ahead of June CPI data, with the DXY holding around the 98.00 mark.
• Market sentiment remains cautious amid ongoing tariff threats from US President Trump.
• June CPI is expected to rise by 0.3% from last month, while Core CPI is projected to rise by 3.0% YoY, up from 2.8% in May.

The US Dollar (USD) is trading on a slightly softer footing on Tuesday as investors brace for the closely watched US Consumer Price Index (CPI) release. With market participants repositioning ahead of key inflation data, the Greenback is struggling to hold onto its previous day's gains.

The US Dollar Index (DXY) is trading modestly lower, hovering near the 98.00 psychological mark during the European session. While the index remains supported, it faces a confluence of key technical resistance at current levels, that is discouraging traders from placing aggressive bets.

The broader market tone stays cautious amid ongoing tariff threats from US President Donald Trump, while investors await the US CPI data for fresh directional cues.

The US CPI report for June is scheduled for release at 12:30 GMT. The significance of this release is heightened by current economic conditions, particularly concerns surrounding the impact of tariffs on consumer prices. Economists expect headline inflation to rise to 0.3% MoM, which would be the biggest monthly gain in five months, following a smaller 0.1% rise in May. The annual inflation rate is expected to rise to 2.7% from 2.4% in May.

The core CPI, which excludes food and energy prices, is projected to rise to 3.0% year-over-year, up from the 2.8%advance in the previous month. The expected increase is partly due to rising costs resulting from recent US tariffs, which are being passed on to consumers through higher prices.

Still, while some of the tariff effects may have already been felt, a more substantial influence is anticipated from July onwards. A hotter-than-expected CPI print could dampen hopes for near-term interest rate cuts, while a softer reading may revive expectations for a dovish pivot from the Fed.

Fed Chair Jerome Powell has clearly stated that uncertainty over the impact of tariffs is one of the main reasons why the central bank has held off on cutting interest rates. Powell highlighted that the Fed "went on hold when we saw the size of the tariffs," and now intends to assess how deeply tariffs will filter through to consumer prices and growth before easing monetary policy.

While some Fed officials believe the tariffs may cause only a temporary rise in prices, many are worried that the inflation effects could be more lasting, making it harder for the Fed to lower rates in the near term.

Market Movers: Trump doubles down on tariffs and criticism of Fed Powell

• On Monday, US President Donald Trump announced plans to impose "very severe tariffs" -- potentially up to 100% -- on Russian exports if a peace deal with Ukraine is not reached within 50 days. In a further escalation, Trump also warned of "secondary tariffs" on countries that continue to engage in trade with Russia, particularly targeting those still importing Russian Oil and Gas. The move is aimed at isolating Moscow economically and increasing pressure on its trading partners, including China, India, and Turkey. These aggressive trade threats have heightened global market uncertainty and raised fears of further disruptions to global supply chains, particularly in the energy and commodities sectors.
• The yield on the benchmark US 10‑year Treasury note held steady above 4.43% on Tuesday, marking a one-month high as investors await today's June CPI report. The sustained rise in yields reflects ongoing expectations that inflation may remain elevated due to tariff-related pressures, signaling that the Federal Reserve could delay interest rate cuts until price growth shows clearer signs of cooling.
• The second-quarter earnings season in the US begins this week, with major banks such as JPMorgan, Citigroup, and Goldman Sachs scheduled to report their results. Investors are closely monitoring the impact of rising costs and trade tensions on companies. Analysts expect modest earnings growth of about 5.8% YoY, well below the 10.2% estimate seen in early April, underscoring the impact of tariff-related uncertainties on corporate profits.
• US President Donald Trump has once again targeted the Fed Chair Jerome Powell. In comments made Monday, Trump called Powell a "knucklehead" and criticized him for keeping interest rates too high, arguing that rates should already be closer to 1%. He also claimed that Powell is hurting the economy by refusing to move faster on rate cuts. In addition to his policy criticism, Trump's remarks come as his administration probes the Fed's recent $2.5 billion headquarters renovation project, suggesting the costs were excessive and hinting at the possibility of firing Powell "for cause."
• The Supreme Court has signaled that a president cannot remove a Fed Chair simply for policy disagreements, misconduct, or mismanagement could be grounds for removal. However, White House National Economic Council Director Kevin Hassett has stated that this issue is "being looked into" to determine if it provides sufficient cause.
• According to The Washington Post, Hassett is emerging as a leading contender to succeed Powell as the next Federal Reserve chair. Hassett supports President Donald Trump's push for lower rates and risks being seen by the markets as lacking policy autonomy.

Technical Analysis: DXY recovery stalls, CPI may drive next move

The US Dollar Index (DXY) is trading near the 98.00 psychological level as investors await the release of the June CPI report.

Over the past two weeks, the index has been recovering steadily, supported by the 9-day moving average at 97.70. The price is currently testing the upper boundary of the wedge near 98.00, but bullish momentum appears tentative ahead of the inflation data. Bulls would need a strong push, possibly from a hotter-than-expected CPI report, to decisively break above 98.00 and reinforce the short-term bullish correction. If that happens, we could see the DXY head toward the 98.80-99.00 zone in the near term.

Momentum indicators reflect a cautious tone. The Relative Strength Index (RSI) is hovering flat around the neutral 50 level, indicating a lack of strong buying interest.

Meanwhile, the Average Directional Index (ADX) remains weak at 11.64, reflecting a lack of clear trend strength.

Overall, any big moves hinge on the upcoming inflation data. A hotter-than-expected CPI reading could provide the fuel needed for a bullish breakout above wedge resistance, reinforcing the case for reduced Fed interest rate-cut expectations and lifting the Greenback. Conversely, a softer CPI print may trigger a pullback, with immediate downside support seen near the 9-day EMA at 97.70 and the lower wedge boundary near 96.50.