FX.co ★ Growth of the dollar or fall in inflation – what to choose?

Recent statements by the chairman of the Federal Reserve System regarding the state of the American labor market have caused a heated discussion. At the same time, less and less attention has been paid to inflation, which can make a lot of noise today.Economists expect that the monthly report on the US consumer price index will show the smallest increase in core inflation since last summer, strengthening the arguments in favor of lowering the Federal Reserve's interest rate in September.

The data will be published in the afternoon. The key price indicator, which includes basic prices excluding food and energy, is expected to increase by only 0.2% in June. The overall consumer price index is predicted to increase by only 0.1%, partly due to lower gasoline prices.Such results will bolster expectations that the Fed will start lowering rates at its September monetary policy meeting, marking the first step towards ending the most aggressive tightening campaign since the early 1980s.However, the more economists expect the June CPI report to be favorable, the higher the chances that the US dollar will significantly rise against the euro and the British pound if price pressures exceed expectations.Factors positively influencing price growth include the reduction in fuel costs and the slowing growth of rental rates, which kept the overall inflation rate high in 2024. Prices for cars and insurance may also decrease slightly, positively affecting the overall CPI.In the event of a slowdown in price growth, discussions about more than one rate cut this year may resurface. At the very least, the chances that after a rate cut in September, we will see similar policy changes by the end of the year will significantly increase.The most negative scenario, which would not fundamentally change anything, is if the figures match economists' expectations. There would be no market reaction in this case, although the chances of strengthening risk assets, including the euro and the British pound, would significantly increase.Technical Outlook for EUR/USDCurrently, EUR/USD buyers must consider reclaiming the 1.0845 level. This is the only way to aim for a test of 1.0870. From there, they can target 1.0900, but achieving this without support from major players will be quite challenging. The furthest target would be the maximum at 1.0940. In the event of a decline in the trading instrument, I expect serious actions from major buyers only around the 1.0810 area. If there is no activity, it would be wise to wait for a retest of the 1.0785 minimum or open long positions from 1.0760.Technical Outlook for GBP/USDFor GBP/USD, pound buyers must reclaim the nearest resistance at 1.2860. This will allow them to aim for 1.2890, which will be challenging to break through. The furthest target would be the 1.2930 area, after which a sharper upward move to 1.2960 can be discussed. In the event of a pair decline, bears will try to regain control over 1.2830. If they succeed, breaking this range will seriously blow the bulls' positions and push GBP/USD towards the 1.2790 minimum with a prospect of reaching 1.2760.