The US Dollar is maintaining its recent gains as markets await the release of the US May Consumer Price Index (CPI) report, with particular focus on core inflation figures. According to ING’s Chris Turner, expectations are that headline inflation will rise above the 4.0% year-over-year level for the first time since May 2023, while core CPI is projected to increase by 0.3% month-on-month and 2.9% year-over-year, up from 2.8% previously [1]. These anticipated inflation readings are keeping market pricing for a Federal Reserve rate hike alive into December, supporting the dollar's strength [1].
Rising US real rates have reversed last year’s dollar debasement trade, putting pressure on assets such as gold, bitcoin, and the Swiss Franc. ING projects the DXY index to drift toward the 100.40/50 area, with continued upside risks to energy prices expected to keep the dollar bid on dips [1]. If the core CPI month-on-month figure comes in at 0.2% instead of the expected 0.3%, short-dated rates could edge lower and the dollar may soften. However, a strong Producer Price Index (PPI) print tomorrow and next week’s FOMC meeting are likely to keep the dollar supported on any dips [1].
Investors are also monitoring key support levels in gold ($4100/oz) and bitcoin ($60,000) for signs of further capital rotation into the dollar. The USD/CHF pair is highlighted as a key vehicle in the ongoing retreat from last year’s debasement trade [1]. ING notes that a soft core CPI reading could see DXY test the 99.50/60 area, but the overall direction is expected to be toward the 100.40/50 level into next week [1].
Equity markets remain volatile as investors adjust portfolios ahead of Friday’s SpaceX IPO, and Oracle’s earnings report after the close is anticipated to provide insights into AI data center revenue opportunities [1].
CONCLUSION
The US Dollar remains supported as markets focus on the upcoming May CPI report, with expectations for firm core inflation keeping Fed rate hike bets alive. While a softer core CPI could briefly weaken the dollar, ongoing risks and upcoming data releases are likely to maintain its strength in the near term.