In July, US inflation measured by the Consumer Price Index (CPI) remained steady at 2.7% on a yearly basis, falling short of the expected 2.8%. The monthly increases for CPI and core CPI were 0.2% and 0.3%, respectively, in line with predictions.<\/p>\n
The annual core CPI rose by 3.1%, surpassing the previous month\u2019s 2.9% and the market forecast of 3%. Following the inflation data release, the US Dollar Index dropped 0.15% to 98.35, with the US Dollar weakening the most against the Swiss Franc.<\/p>\n
The expectation for US inflation in July was set at an annual rate of 2.8%, showing an increase from June’s 2.7%. Core CPI inflation, excluding food and energy, was forecast to rise by 3% annually, compared to 2.9% previously.<\/p>\n
US inflation data can influence the Federal Reserve’s outlook on interest rates. There is a 90% probability, according to the CME FedWatch Tool, that the Fed will reduce the policy rate by 25 basis points in September, impacting the US Dollar’s value. A headline inflation reading of 2.6% or lower could lead to rate cut expectations and affect the currency further.<\/p>\n
With the July inflation report now behind us, our focus shifts squarely to the Federal Reserve’s September meeting. The data showed headline inflation stalling at 2.7%, just below expectations, while core inflation surprisingly ticked higher to 3.1%. This mixed signal creates opportunity, as the market is heavily positioned for a rate cut.<\/p>\n
We should use derivatives to position for the widely expected 25 basis point rate cut next month. Current data from the CME FedWatch Tool on August 12, 2025, continues to show a probability near 90% for such a move, making long positions in interest rate futures a primary strategy. This involves betting that interest rates will indeed fall as predicted.<\/p>\n
The expectation of lower rates is already pressuring the US Dollar, which we saw dip below the 98.00 level on the DXY index following last month’s CPI release. We see continued weakness as a likely path, so buying put options on the dollar or call options on the Swiss Franc are logical plays. This strategy profits if the dollar continues to decline against other major currencies.<\/p>\n
For the stock market, this environment is generally favorable, as lower interest rates reduce borrowing costs for companies. Looking back at the aggressive rate-hiking cycle of 2022-2023, this potential cut marks a significant policy pivot that could boost equities. We can express this view by buying call options on the S&P 500, anticipating a market rally into the Fed’s decision.<\/p>\n
However, the divergence between headline and core inflation introduces uncertainty that we can trade. If we expect the debate around the Fed\u2019s decision to intensify, market swings could increase. We can prepare for this by purchasing call options on the VIX, which is a bet on rising market volatility in the coming weeks.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" US inflation holds at 2.7% in July; core CPI rises, boosting rate cut expectations and weakening dollar.<\/p>\n","protected":false},"author":62,"featured_media":17027,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-28893","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28893","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/comments?post=28893"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/posts\/28893\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media\/17027"}],"wp:attachment":[{"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/media?parent=28893"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/categories?post=28893"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarkets.com\/en-ca\/wp-json\/wp\/v2\/tags?post=28893"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}