Inflation Outlook Fuels Dollar Floor, Euro Faces French Risk

The latest U.S. consumer‑price data is expected to push headline CPI 0.7 % and core CPI 0.3 % MoM, a touch above the consensus of 0.6 % and 0.2 % respectively. While the numbers may not immediately trigger a 50 %+ probability of an October Fed rate hike, they reinforce the narrative that further tightening is likely and could support a stronger dollar base.

Yesterday’s session saw the dollar soften as the market’s stretched positioning and short‑term overvaluation collided with a rebound in global bonds. Fed Governor John Williams’ dovish remarks—he still sees one more hike this year but expects inflation to ease and no tightening in 2027—added a modest lift to risk sentiment without dramatically altering short‑term pricing.

Today’s CPI release will be a key barometer. If headline inflation approaches 1.0 % or core climbs to 0.4 % MoM, market odds of an October hike could swing above the 50 % threshold.

On the euro side, the currency has rebounded to the 1.120 level, largely because of a softer dollar. However, euro‑crosses remain sluggish, reflecting persistent French risk. The France‑Germany 10‑year yield spread narrowed by roughly 5 bp to 137 bp, a move driven more by global bond market relief than domestic factors.

We project a one‑month target of 1.13 for EUR/USD, but the pair could test the 1.1150‑1.1160 zone in the near term.

These dynamics underscore the importance of monitoring U.S. inflation data and the evolving risk appetite surrounding European markets, particularly the French sovereign debt environment.