US dollar crumbles on the first sign of peak inflation


The euro broke out of its three-week range against the US dollar after a soft US inflation report.

July CPI was flat on the month and lower than the +0.2% consensus estimate. Core and year-over-year measures were also lower than anticipated.

The dollar fell right across the board with USD/JPY plunging 200 pips on the day. That wipes out Friday’s gain, which came on a strong non-farm payrolls report.

The implied odds of a 75 basis point hike at the Sept 21 FOMC are down to 37% from 68% yesterday as the market senses peak inflation. We will get another CPI report before then but with gasoline prices continuing to fall, there’s a good chance it’s also low.

Along with the drop in the dollar, US equity futures are soaring with eminis up 75 points, or 1.8%.

Notably, the US dollar was curiously weak ahead of the data. Some traders noted that the White House didn’t pre-announce anything about CPI. Previously, they had ‘prepared’ the public. Before the prior release, the White House said it expected the June reading to be ‘highly elevated’. This time it was silence and whether that was deliberate or not, some saw it as a tipoff.