- Annual CPI inflation is expected to decline slightly in July.
- Fed is unlikely to renounce hawkish policy shift on single CPI print.
- EUR/USD could target fresh 2021 lows amid broad-based USD strength.
Inflation in the United States, as measured by the Consumer Price Index (CPI), is expected to edge lower to 5.3% on a yearly basis in July from the 13-year-high registered at 5.4% in June. The annual Core CPI, which excludes volatile food and energy prices, is forecast to retreat to 4.3% from 4.5%.
Following the latest comments from FOMC policymakers and the impressive July jobs report, investors are expecting the US Federal Reserve to start reducing asset purchases before the end of the year. The confirmation of the hawkish tilt in the Fed's policy outlook provided a boost to the greenback and the US Dollar Index climbed beyond 93.00 for the first time in more than two weeks.
The US Bureau of Labor Statistics reported on August 6 that Nonfarm Payrolls (NFP) in the US increased by 943,000 in July, compared to analysts' estimate of 870,000. Moreover, June's print got revised higher to 938,000 from 850,000 and the wage inflation, as presented by Average Hourly Earnings, rose to 4% on a yearly basis from 3.7%.
On August 4, Fed Vice Chair Richard Clarida noted that he can see the Fed announcing tapering later in the year. On a similar note, Dallas Fed President Kaplan said that the Fed should start tapering purchases and do it in a gradual way, Atlanta Fed President Raphael Bostic added that he could see the Fed reducing purchases between October and December. Finally, Richmond Fed President Thomas Barkin noted that the Fed has made substantial further progress toward the taper benchmark.
In the meantime, FOMC Chairman Jerome Powell acknowledged during the monetary policy press conference that it was difficult for them to tell when inflation will move back down. "Inflation has increased notably and will remain elevated in coming months before moderating," Powell said and added that price pressures could be more persistent than expected.
EUR/USD outlook
Unless the CPI reading is a big negative surprise, the USD is likely to continue to outperform its rivals ahead of the Jackson Hole Symposium that will take place on August 26-28.
On the downside, the initial support for the EUR/USD pair is located at 1.1700 (psychological level, March 31 low, 2021 low). With a daily close below that level, the pair could target the next static support at 1.1620 ahead of 1.1600 (psychological level).
Resistances, on the other hand, could be seen at 1.1800 (psychological level, 20-day SMA) and 1.1900 (psychological level, 50-day SMA). Only a daily close above the latter could attract buyers and help EUR/USD extend its rebound toward 1.1970, where the 100-day SMA is located.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks

EUR/USD bounces off lows, back near 1.1330
EUR/USD meets daily support around the 1.1300 neighbourhood, managing to regain pace and revisit the 1.1330 region. Sentiment turned after President Trump proposed a “straight 50% tariff” on European imports, undermining the pair’s bullish momentum.

GBP/USD eases from tops, revisits the 1.3500 zone
GBP/USD benefits from broad US Dollar weakness, climbing to its highest level since February 2022 past 1.3500 at the end of the week. UK retail sales data surprised to the upside in April, lending extra wings to the quid.

Gold keeps the bullish tone near $3,350
Gold extends its weekly advance, trading around $3,350 per troy ounce on Friday. The rally in XAU/USD is driven by broad-based weakness in the Greenback, particulalry after President Trump’s threat to impose 50% tariffs on European imports.

Apple stock sinks below $200 after Trump threatens more tariffs Premium
Trump grows irate at Apple's move into India. President claims Apple must produce US-sold iPhone in US or face a 25% tariff. US equity futures slip more than 1% in Friday premarket after Trump threatens the EU with a 50% tariff.

Ripple Price Prediction: Whale accumulation sparks hope as rising exchange reserves signal caution
XRP sustains mid-week recovery as XRP/BTC flashes golden cross for the first time since 2017. Large volume holders increase XRP exposure, indicating rising demand and investor confidence.