The US dollar is receiving bids as the euro, Australian dollar, New Zealand dollar, and British pound decline. The Canadian dollar, yen, and Swiss franc remain steady. In London, it was reported that a framework with China has been reached. This framework intends to implement the Geneva agreement, aimed at lowering tariffs.

Risk foreign exchange is experiencing more offers than bids. Tariffs remain in place, as a U.S. appeals court agreed they can stay during a legal challenge. Market participants show skepticism towards risk FX. Market activity is relatively quiet ahead of upcoming US data releases.

CPI Predictions

The US Consumer Price Index (CPI) data is scheduled for Wednesday. The core CPI is expected to be just under 3% year-over-year. Bank of America and Morgan Stanley have projections for the May US CPI report. Goldman Sachs suggests that tariffs might increase inflation, even if pressure from other areas eases.

The current behaviour across currency pairs reflects a preference for safety over yield, with the dollar receiving steady support while traditionally higher-yielding or commodity-linked currencies slide. This move hints at growing caution ahead of U.S. inflation data, particularly the Consumer Price Index due midweek. With expectations pointing towards a core reading just shy of 3%, traders—ourselves included—have grown more attentive to forward guidance and surprise risks.

Goldman’s comments on tariffs point to a more stubborn inflation backdrop than previously thought. Although supply chains are gradually adapting, any extension or reinforcement of tariffs could add to producer costs, eventually feeding into consumer prices. This adds a layer of uncertainty for rate markets, particularly in pricing terminal rate expectations and the pace of cuts.

From our perspective, attention needs to remain sharply focused on both realised and implied volatility measures. A low-volatility environment might be misleading where catalysts like CPI or Fed commentary can provoke sharp shifts. For now, the reluctance in risk-linked FX suggests hedging appetite is building, with some leaning into US rate backing and dollar strength as a near-term default.

Currency Pair Trends

Further, the legal ruling supporting current tariffs—even as they undergo appeal—will likely discourage anticipations of early reversals. Traders more focused on short-term cross-currency play should note that until any material shift in the legal direction occurs, pricing for goods and cost assumptions in global indices will remain under these constraints.

Meanwhile, Canadian and Japanese pairs continue to trade in tighter ranges, likely reflecting central bank proximity to policy thresholds and a lack of surprise in data. Such pairs may offer structure for relative value strategies as wider G10 volatility creeps higher.

Underlying all of this is the simple fact that the reaction to Wednesday’s data will probably dictate not just rate expectations but also trading direction well into the next fortnight. While asset managers stay cautious, implied vol in options markets gives us a lead – if expectations are breached, positioning could swing swiftly.

Traders should adjust sizing and leverage accordingly. Medium-term setups that rely on softening inflation need to be treated with care—especially if the tariff effect materialises in June data. For weekly strategies, it may be best to engage in tighter risk-reward setups, giving breathing room for swift reaction without overexposing.

Lastly, keep an eye on secondary revisions and how the Fed messaging aligns later this week. The CPI print is not isolated; it ties into broader policy discussions. Reading beyond the headline number and into components—such as shelter, used vehicles, medical services—might offer the best insight into whether pricing remains broad-based or begins to consolidate around specific categories.

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