The US Dollar (USD) traded in a relatively stable manner during the Asian session on Tuesday, with market participants awaiting the release of the United States Consumer Price Index (CPI) data scheduled for Wednesday, which is expected to be a major catalyst for currency movements [1][2]. The British Pound (GBP) maintained its two-day gains against the USD, trading around 1.3500, as it outperformed other major currencies despite markets largely discounting the likelihood of a near-term interest rate hike by the Bank of England (BoE) [1]. According to strategists at Rabobank, there is currently a reduced expectation of a BoE rate hike by year-end [1]. This week, the focus for GBP traders will be on the preliminary UK Q2 and June GDP data, due Thursday, with expectations for Q2 growth at 0.4% (down from 0.6%) and a monthly contraction of 0.1% [1].
The GBP was the strongest major currency against the Japanese Yen this week, and showed a 0.18% gain against the USD [1]. Meanwhile, the US Dollar Index (DXY) hovered near 99.80, holding onto Monday’s recovery, as investors awaited the US CPI data [1]. Brown Brothers Harriman’s Elias Haddad projected that the July US CPI would show headline inflation rising by 0.1% month-on-month (versus -0.4% in June) and easing to 3.4% year-on-year (from 3.5% in June), with core CPI expected to rise 0.2% month-on-month (versus 0.0% in June) and ease to 2.5% year-on-year (from 2.6% in June) [1].
In the Canadian Dollar (CAD) market, the USD/CAD pair consolidated near a two-month low, trading below the mid-1.3900s, as bullish oil prices and strong Canadian employment data underpinned the CAD [2]. However, modest USD strength limited further downside for the pair [2]. Investors remained cautious ahead of the US inflation data, with concerns that volatile oil prices could increase inflation risks and potentially prompt the US Federal Reserve (Fed) to adopt a more hawkish stance [2]. Traders are still pricing in a greater possibility of at least one Fed rate hike by year-end [2]. The USD/CAD pair traded just above the 100-day Simple Moving Average (SMA) at 1.3918, indicating a consolidation phase [2].
Both articles highlight that the upcoming US CPI (Wednesday) and PPI (Thursday) releases are expected to provide fresh impetus for USD pairs, with market participants awaiting these data points before making significant directional bets [1][2].
CONCLUSION
Markets are in a holding pattern ahead of key US inflation data, with the British Pound and Canadian Dollar showing relative strength against the US Dollar due to domestic factors and commodity prices. The outcome of the US CPI and PPI releases is expected to set the tone for future moves in major currency pairs. Until then, traders remain cautious, with no aggressive positioning evident.