The US inflation data later will cover the month of July and the estimates are as per the following:

• Headline CPI +0.1% m/m est. (Prior -0.4%)
• Headline CPI +3.4% y/y est. (Prior +3.5%)
• Core CPI +0.2% m/m est. (Prior 0.0%)
• Core CPI +2.5% y/y est. (Prior +2.6%)

As always, the core numbers will be the key focus in the report. And barring any major surprises, we’re not likely to see that much of a shift to the inflation and Fed outlook.

The June report was leaning to the softer side, but the expectation is that the July report will start to fall back in line with the recent trend. The drop in energy prices should pin down headline inflation slightly but core prices are likely to keep more stubborn and continue to hold well above the 2% threshold on an annual basis.

If anything, I would argue markets will not get too carried away even on any hotter prints as Fed chair Warsh is still looking somewhat reluctant to turn up the hawkish dial.

A miss on estimates instead will have the potential to see a material dovish repricing. Equities can definitely use this as a good excuse to find some much needed relief after the recent shake up. So, that’s one spot I would be keen to eye on any downside surprises to the inflation data.

In other words, the balance of risks appear to be skewed more towards the downside for the dollar on a softer print rather than being able to capitalise on a hotter report.

On a benign set of numbers though, we’ll only get a better sense of what the Fed might do in the next report in August instead. That will fall on 11 September, five days before the next FOMC meeting decision.

Goldman Sachs:

“We expect a 0.19% increase in July core CPI (vs +0.2% consensus), corresponding to a year-over-year rate of +2.47% (vs. +2.5% consensus). We expect a 0.05% increase in headline CPI (vs +0.1% consensus), reflecting lower energy prices. Our forecast is consistent with a larger 0.26% increase in core PCE in July, reflecting a large increase in its portfolio management component. Looking beyond July, we expect monthly core CPI increases of around 0.2% over the next couple of months, reflecting the continued slowdown in the shelter categories, shrinking contributions from tariff-related price increases, and the reversal of upward pressure on airfares from higher jet fuel prices, though risks are tilted to the upside if disruptions to oil markets and associated oil price increases prove more persistent than expected.”

BofA:

“After a notably soft June CPI report, we expect the July CPI to print more in-line with recent trends, including 0.1% m/m in headline and 0.2% in core. We go into the data maintaining our call for 3 Fed hikes this year, even after last week’s soft labor report. Overall labour conditions remain stable, with Fed’s reaction function still skewed to the inflation side of the mandate. We expect US rates and the USD to react more to a downside print than to an equally sized upside print. While an upside print should put the Sept FOMC firmly in play, the decision would still likely hinge on August data, given Chair Warsh’s apparent reluctance to hike. Conversely, a soft print would all but rule out a September hike and notably challenge market pricing of ~30bp of hikes through December. UST positioning and to a lesser extent USD positioning point marginally in this direction.”