USD faces pressure as markets eye potential 50bps Fed cut on cool CPI

The US dollar index (DXY) is trading defensively near 101.50 as markets position for potentially dovish CPI data that could trigger aggressive Federal Reserve easing. AUD/USD has climbed 0.2% to 0.6680, benefiting from USD weakness and improved risk sentiment. Markets are increasingly pricing the possibility of a 50bps rate cut at the September FOMC meeting if inflation shows meaningful deceleration toward the Fed's 2% target. Current Fed funds futures indicate a 35% probability of a larger cut, up from 20% last week. The Australian dollar gains additional support from firm commodity prices and China's latest stimulus measures. Technical analysis shows AUD/USD eyeing resistance at 0.6700, with momentum indicators turning bullish. A CPI reading below 2.5% YoY could accelerate USD selling and push AUD/USD toward 0.6750, while an upside surprise might trigger a relief rally in the greenback.