The one-session wonder, CPI fizzle flattens post-tariff USD glow

One-session wonder

The dollar’s post-tariff-truce glow didn’t last long. What looked like the start of a momentum breakout turned into a one-session wonder, as a soft CPI print triggered an immediate reload of strategic short-USD positioning. The greenback got clipped across the board—not just because inflation came in light, but because the FX market was itching for a reason to fade the bounce.

Core CPI’s cooler-than-expected +0.2% MoM gave dollar bears exactly what they needed: a clean re-entry. The real story isn’t just the CPI miss—it’s the underlying fragility of the U.S. macro setup. Traders are looking past the headline tariff de-escalation and seeing a bigger question: has the damage already been done to the economy? Until the data proves otherwise, the dollar’s upside is going to feel like pushing a shopping cart uphill—it’ll roll back at the first sign of weakness.

Add in the fact that USD 10-year swap spreads are still elevated (north of 50bps), and you’ve got the market quietly whispering concerns about Treasury market stress and U.S. fiscal sustainability. That’s the kind of background noise that makes short dollar trades sticky—even in the face of marginal good news.

Fed rate expectations haven’t moved much post-CPI—markets are still pricing just 50bps of cuts by year-end—but positioning suggests the risk is skewed to the dovish side. Inflation hasn’t shown the impact of tariffs yet, and the Fed isn’t going to blink without more evidence. But Powell’s remarks today will still get airtime—even if he stays tight-lipped on tariff implications. Don’t expect fireworks.

In the meantime, the dollar may stabilize after two choppy sessions—but the structural tone feels heavy. Until there's a new catalyst, the bias remains for high-beta currencies to outperform as risk sentiment breathes a little easier post-trade thaw.

EUR/USD is back near 1.120, but don’t mistake that for euro strength—it’s dollar weakness doing the lifting. The ECB’s ongoing dovish tone means the euro remains a passenger, not a driver, in the FX complex. Eurozone ZEW sentiment bounced, but current conditions are still stuck in the mud. Final CPI prints and ECB speak will dominate today, but expect consolidation around the 1.12 handle as EUR/USD continues to trade like a USD proxy rather than a standalone macro bet.

The view: The Dollar’s crown slips

The dollar isn’t dead—but its aura of invincibility is wearing thin.

Since the 1944 Bretton Woods agreement, the greenback has sat atop the global financial system like a monarch. But in today’s markets, that crown is slipping—not because there’s a clear successor, but because confidence in the throne itself is eroding. The DXY is down over 8% year-to-date, battered by a cocktail of cooling inflation, trade recalibration, and a growing unease with Washington’s policy unpredictability. Monday’s bounce on the 90-day U.S.–China tariff truce offered a brief reprieve, but softer CPI quickly erased the edge.

What’s striking isn’t just the price action—it’s the divergence from traditional FX drivers. U.S. rate differentials remain elevated, with the spread over German bunds near the top of its range. And yet, the dollar can’t seem to catch a sustainable bid. That tells us something deeper is at work: trust is fraying, and the market is starting to price political dysfunction alongside monetary policy.

We’re not calling for the collapse of dollar hegemony—there’s no credible challenger standing by. But what’s unfolding is a slow, structural dilution of dominance. De-dollarization isn’t just a geopolitical talking point anymore; it’s filtering into reserve composition, cross-border settlements, and hedging behaviors. Gold’s recent moonshot, despite signs of overextension, is one symptom of this “get-out-of-the-way” sentiment.

The real FX inflection will hinge on three axes:

• Cyclically, the U.S. still looks resilient—enough to keep the dollar from unraveling.
• Politically, the narrative remains murky, with Trump’s economic nationalism clashing with investor expectations.
• Structurally, the long arc of global capital may finally be bending away from unquestioned U.S. supremacy.

In short, the dollar hasn’t lost its crown—but the market’s no longer bowing unconditionally. This is a soft regime change, not a revolution. The next leg will depend less on rate spreads and more on trust, credibility, and whether U.S. policy can stop tripping over its own shoelaces. Until then, FX traders would be wise to treat dollar weakness as a grind, not a crash—and to watch the macro chessboard, not just the ticker.