US FX WRAP: Dollar gains as 2026 rate hike bets remain despite September calls easing following in-line CPI

USD was firmer following an in-line July CPI report. The initial reaction was lower, which held for a short time, before reversing to the upside as seen in the US 2yr yield. The report will keep debates over hikes in play, however coming shortly after a poor NFP report, September bets on a Fed hike have slightly pulled back given the bar has been raised for the next inflationary readings before the next FOMC to shift the Fed in a more hawkish direction. Money markets shifted dovish following the CPI release, pricing in a 40% chance of a 25bps Fed rate hike at the September meeting (prev. 50%), however, a 25bps hike is still fully priced by year end. Separately, ING notes recent reports of Trump weighing capital gains tax cuts to boost mid term performance would prove a mild dollar negative from a pro-risk perspective. DXY trades around highs of 100.02 against CPI-induced 99.613 lows. G10FX generally traded lower against USD, led by CHF and NZD. Meanwhile, AUD relative outperformance remained as recent hawkish RBA Governor comments helped limit weakness. Elsewhere, EUR/USD was muted towards the unrevised Italy and Germany CPI figures; EUR/USD hit highs of 1.1563 on the US CPI report. The pair now trades around 1.1522.