USD: We expect 0.4% MoM core CPI - ING

The dollar has found some support ahead of today's US CPI release. Some of this may reflect profit-taking in still relatively crowded USD shorts, as well as President Trump's decision to extend the tariff pause on China by another 90 days. Also contributing could be Trump's attempt to downplay expectations for Friday's summit with Putin, calling it a 'feel-out meeting' to gauge Russia's demands, and adding 'that'll be the end' if no agreement is reached. Markets had possibly priced in a slightly more optimistic stance on a quicker resolution, ING's FX analyst Francesco Pesole notes.

FX remains somewhat sensitive to geopolitical developments

"We'll continue to monitor headlines into Friday - Trump speaks with Zelenskyy tomorrow - as FX remains somewhat sensitive to geopolitical developments. Still, as discussed yesterday, data should remain the primary driver for USD. We expect a 0.4% MoM core CPI print today, above the 0.3% consensus. That would push YoY core inflation from 2.9% to 3.1%, and headline from 2.7% to 2.9%."

"Despite some positioning rebalancing ahead of the release, a hotter-than-expected print should still support the dollar, as markets may revise down expectations for a September Fed cut to below 20bp. However, we think labour market data is more influential than inflation, given the consensus view that tariff-induced price shocks are transitory and last month's large payroll revisions. So even a 0.4% MoM core print could still be consistent with a September cut - if accompanied by further labour market deterioration."

"For that reason, our above-consensus inflation call doesn't translate into expectations for a sustained USD rally. We see any support as short-lived. Also on today's US calendar: the NFIB Small Business Optimism Index and July's Federal budget data."