Dollar Strengthens as Hot CPI Data Dampens Fed Rate Cut Expectations

16 July 2025, 08:29

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Key Takeaways:

*June CPI came in at 2.7% YoY, above forecasts and May’s 2.4%, triggering a hawkish shift in Fed expectations and boosting the dollar.

*Markets pulled back bets on a July rate cut, now viewing September as the next likely window—conditional on softer inflation prints ahead.

*President Trump proposed new tariffs on pharmaceutical imports, reigniting trade tensions and supporting the dollar’s safe-haven appeal.

Market Summary:

ThThe U.S. dollar rallied sharply following an unexpectedly strong inflation reading, casting doubt on the likelihood of a near-term Federal Reserve rate cut. The June Consumer Price Index (CPI) rose 2.7% year-over-year, exceeding both market expectations of 2.4% and the prior month’s reading. Analysts pointed to early price pressures stemming from the Trump administration’s recent “Liberation Day” tariffs as a key driver behind the inflationary rebound.

The hotter CPI print prompted markets to reassess Fed policy expectations, with traders now viewing a July rate cut as increasingly unlikely. Instead, focus has shifted to September as the next potential window for monetary easing—contingent on forthcoming inflation data aligning with the central bank’s dovish pivot criteria.

The dollar index (DXY) jumped more than 0.5% to reach its highest level this month, while Treasury yields surged in tandem. The 30-year yield breached the psychologically significant 5% threshold for the first time since May, further bolstering the greenback’s appeal.

Adding to market uncertainty, President Trump announced impending tariffs on pharmaceutical imports—the latest in a series of protectionist trade measures. The move reinforced demand for traditional safe-haven assets, including the dollar, as investors weighed the potential for renewed trade friction to disrupt global supply chains and amplify inflationary pressures.

With Fed policy expectations in flux and trade tensions resurfacing, currency markets are likely to remain sensitive to both economic data and geopolitical developments in the weeks ahead.

Technical Analysis

DXY H4:

The U.S. dollar index extended its rally, rising more than 0.5% in the previous session to notch a fresh July high at 98.69. The breakout above the ascending triangle pattern confirmed the continuation of its higher-high structure and reinforced the formation of a well-defined uptrend channel—signaling a strong bullish bias.

Momentum indicators aligned with the price action. The Relative Strength Index (RSI) has broken into overbought territory, reflecting strong buying pressure, while the MACD is showing signs of further divergence above the zero line, indicating that bullish momentum is gaining traction.

With technicals pointing north and macro tailwinds—such as firmer U.S. inflation data and rising Treasury yields—supporting the greenback, the dollar index appears poised to challenge new highs in the sessions ahead.

Resistance Levels: 99.25, 100.00
Support Levels: 98.45, 97.75