Consensus expects 0.2% MoM readings for both headline and core today – consistent with inflation running closer to the Fed's 2% target. Normally we would say that this outcome would be a Dollar negative – questioning whether the Fed needs to keep rates at these restrictive 5%+ levels for an extended period after all.

However, US activity data – especially the labour market and consumption data – have been stronger than expected and are likely to keep the Fed on guard for longer. And FX price action after the recent soft 2Q23 Employment Cost Index release hinted that disinflation may not be enough to take the Dollar lower on a sustained basis. For that to happen it looks like we will need to see both softer US activity data (look out for jobless claims today) and a much more attractive overseas investment environment than currently on offer in China or Europe today. 

Expect DXY to continue to trade within a 101.80-102.80 range.