USD: Dovish bias can hit the dollar – ING

Our call is for a consensus 0.2% MoM core CPI in the US on Thursday. But markets should react to the decimal places before rounding, and the distribution of economists’ estimates suggests expectations may be slightly skewed towards a higher number, ING’s FX strategist Francesco Pesole notes.

Short-term risks for DXY appear skewed to 104.50

“Risk sentiment has improved into Thursday’s US June CPI report, perhaps as markets expect the figures to keep the Federal Reserve on track for a September rate cut, which is 20bp priced in. As usual, the market-moving sub-index will be the month-on-month CPI excluding food and energy, which we forecast at 0.2% in line with consensus.”

“The distribution of economists' estimates has a fatter right-end tail, meaning actual expectations are closer to 0.24% than 0.15% (both would be rounded to 0.2%). In year-on-year terms, the consensus number is 3.4% for core inflation, and headline CPI is expected to slow further from 3.3% to 3.1% YoY.”

“We have a slight bias for a weaker US Dollar (USD) today given the market’s recent dovish tendency despite inconclusive evidence for a September cut just yet. We still believe the Euro-heavy DXY index may not show the full extent of a softening of the USD that should primarily benefit high-beta currencies. Still, risks for DXY appear skewed to 104.50 in the very short term.”