Dollar mostly flat after inflation meets expectations

The US dollar has held around familiar areas with July’s inflation matching the consensus precisely.

American inflation, headline and core, on 12 August was as expected, generating relatively little volatility as markets are seasonally less active around the middle of August. This article summarises the latest news affecting the US dollar then looks briefly at the charts of cable and AUDUSD.

In July, American annual headline inflation declined slightly to 3.4% as widely expected:

The lower uptick in prices of fuel compared to June was possibly surprising but there wasn’t a big difference between the two months. Meanwhile most other major components of headline inflation such as rents/shelter and food were the same or nearly the same as the previous month. With all of the annual and monthly releases for both core and non-core meeting expectations, there was much lower volatility on the whole compared to the average around inflation, compounded by the release being around the middle of August when markets are usually less active.

The combination of a weaker NFP and lower inflation for July means that the more hawkish expectations for the Fed have moved out of focus for now. With the job market possibly slowing down or at least certainly not heating up in recent months and inflation declining for two consecutive months while the annual headline figure remains below the base rate of interest, there’s no immediate pressure on the Fed to hike in September.

As of 13 August, a moderately sized majority of participants, around 64%, expects another hold by the Fed on 16 September according to CME FedWatch. A slight majority of around 52% expects at least one hike by 28 October and the probability of a hold all the way into 2027 has risen but remains only around 28%.

Traders might now look ahead to the release of the Fed’s minutes on 19 August. However, it’s unlikely that these will bring significant new information since the meeting occurred before the weaker NFP and inflation over the last week. Barring major developments in the Gulf or a clear change in sentiment overall, most major markets are likely to remain in summer mode with relatively low activity and volatility for the next few days.

Cable still eyeing a break above $1.35

Slightly better British GDP than expected on 13 August has helped cable to hover close to familiar areas slightly below $1.35. Although the latest NFP was overall negative, American inflation as expected on 12 August didn’t produce much movement on the chart. With both the Fed and the BoE likely to remain around 3.5-3.75% for the near future, there’s no obvious input from monetary policy for now; traders will probably have to wait until early next month for significantly clearer expectations for the next moves by rates.

$1.35 remains a likely area of resistance which the price is currently testing. However, a clear breakout around the middle of August seems very unlikely unless there’s surprising news. Volatility based on ATR is close to the minimum while volume remains seasonally low, but the slow stochastic signals overbought. If there’s a break above $1.35 further ahead, the next target might be around May’s highs near $1.36.

The main moving averages have bunched fairly closely together below the price as volatility and momentum declined in August. The value area between the 100 and 200 SMAs around $1.343 is a possible support but the 23.6% weekly Fibonacci retracement around $1.335 might be stronger. Given the seasonal conditions, an upward breakout around upcoming British job data and inflation is questionable unless these releases are genuinely surprising.

Aussie dollar holds around dynamic resistance

The Australian dollar has generally held its strength since early August as the RBA indicated preparedness to hike rates further if necessary. A total of 0.75% of hikes in 2026 so far means that conditions are overall restrictive in Australia and the Aussie dollar seems to be benefitting from the carry trade against other major currencies. With no imminent threats to the stability of trade, AUD’s basic fundamentals seem strong but traders will continue to monitor any possible intensification of hostilities in the Gulf which might influence AUDUSD lower.

The 100 SMA around 70.6c remains the key dynamic resistance which the price has been testing for several days without success. As for cable, a breakout higher in the middle of August seems questionable with very low volume and overall activity. The recent shape of the chart of AUDUSD is generally similar to cable although the context isn’t, so when volume does return at the end of August or early September the Aussie dollar might be a better buy than sterling against the greenback. However, this depends on fundamentals as noted above. The high from May on this chart is more than two cents above the current price, so a confirmed break above resistance could allow for a decent ratio if buying.

The 100% weekly Fibonacci retracement just below 69c seems like a strong through possibly broad area of support. In the short term, though, 70c is a more likely source for a bounce if the price retraces lower, being a psychological area and around the 200 SMA.

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The opinions in this article are personal to the writer; they do not represent those of Exness. This is not a recommendation to trade.