US Dollar Index (DXY) consolidates around 98.50 with US CPI on tap

• The Dollar treads water around 98.50 with all eyes on the US Consumer Price Index.
• The market consensus anticipates higher inflationary pressures that might put Fed cuts into question.
• Soft inflation data is likely to increase risk appetite and send the USD lower.

The US Dollar remains fairly steady on Tuesday, following a 0.4% recovery on the previous two trading days. The immediate bias remains negative, but investors are waiting for the US CPI data for a more accurate assessment of the Fed's monetary policy, which is likely to determine the Greenback's near-term direction.

The market consensus anticipates hotter price pressures in July, with the headline inflation rising to a 2.8% yearly rate, from 2.5% in June, and the core inflation hitting five-month highs at 3%.

The US Dollar bides its time ahead of US inflation data

Investors remain wary of higher-than-expected figures, which would confirm that Trump's higher tariffs have reached Main Street. This might dampen hopes of Fed cuts in September, which are priced at nearly 90% at the moment, providing additional support to the US Dollar.

Previous US macroeconomic releases have revealed a softer-than-expected labour market, triggering diverse messages from the central bank's officials calling for interest rate cuts. Beyond that, Trump is expected to nominate loyalist doves for the vacancies left by Governor Adriana Kugler and Chairman Powell, which has contributed to raising hopes of a less hawkish Fed.

A low inflation report, on the contrary, would ease concerns about the impact of tariffs and might pave the Fed's path for a September cut. This option would trigger some risk appetite and might increase bearish pressure on the US Dollar.