US inflation report to show first signs of tariff related price pressures

An easing in trade tensions between the US and China should be good news for the dollar, but the greenback has found gains hard to come by since last night’s announcement.

For starters, the “framework” still needs to be signed off by both Trump and Chinese President Xi. The truce is also very much lacking in details, and investors are struggling to get a clear read on how the agreement could impact both the US and Chinese economies.

More work clearly needs to be done, and sentiment will likely remain fragile until a bigger breakthrough is found. All focus now shifts to this afternoon’s US inflation report for May.

President Trump’s tariffs provide a challenge for US growth, but they also bring with them inflationary risks through higher imported prices. We suspect that we’ll see the first real signs of this increase in price pressures in today’s report, with both the main and underlying CPI figures set to tick higher from April.

We will also be keeping tabs on the emerging story that Treasury Secretary Scott Bessent is being considered as a contender to succeed Jerome Powell as chair of the FOMC.

This would again raise concerns over the Fed’s independence, and the dollar could come under renewed selling pressure as a consequence.