USD: CPI Data Crucial as Fed Rate Cut Expectations Mount

USD faces pivotal week with July CPI release expected to show 0.2% monthly increase, as markets price in September Fed rate cut amid recent weak economic data. The dollar index has softened 1.2% over the past week as traders position for potential policy shift. Fed officials have turned increasingly dovish following disappointing employment and manufacturing indicators, with futures markets now pricing 85% probability of 25bp cut in September. Stagflation concerns are rising as growth slows while inflation remains sticky. A hotter-than-expected CPI reading could trigger sharp dollar rally and unwind rate cut bets, potentially pushing EUR/USD below 1.0900 support and USD/JPY toward 147.00 resistance. Conversely, softer inflation would likely accelerate dollar selling, with EUR/USD targeting 1.1000 psychological level. Traders should monitor closely as unexpected inflation surprises could cause significant volatility across all major USD pairs.