The buck hasn’t peaked yet and could extend its record advance, especially as the risk-off tone continues to dominate global financial markets
Global stocks have been mostly under pressure as the key US inflation report looms. The data is expected to show that consumer prices hit a fresh pandemic peak last month, marking the largest jump since 1981 and reflecting higher gasoline and elevated food costs.
Of note, fuel prices have started to ease this month, suggesting inflation will slow down in the July data, which could lead to less-aggressive Fed’s policy action later this year. In particular, should lower CPI prints start to emerge, the central bank officials will easily switch their comments to a 50-basis point hike for September.
However, at this stage, the US central bank is expected to keep tightening its policy vigorously. Should the June CPI show headline inflation rise above May’s 8.6% level, the release could prompt the Federal Reserve to hike interest rates by another 75 basis points later this month. Otherwise, market expectations will retreat somehow.
Another strong report could add to the dollar’s bullishness in the near term. The USD index registered fresh twenty-year highs around 108.55 on Tuesday, retaining the upside bias today. The fact that the greenback refrains from a technical correction despite the overbought conditions suggests the price hasn’t peaked yet and could extend its record advance, especially as the risk-off tone continues to dominate global financial markets, playing into the safe-haven USD’s hands.
Technically, the dollar index could target the 109.00 figure next, while the immediate barrier now arrives around the mentioned high of 108.55. On the downside, the nearest short-term support is represented by the 108.00 mark, followed by the 107.85 intermediate hurdle on the way towards this week’s low of 107.00.