The dollar index (DXY00) is down -0.28% today due to the increased chances of a Fed rate cut after today's CPI report.  The market boosted the chances for a Fed rate cut at the September meeting to 96% from 88% after today's US CPI report did not contain any nasty surprises. 

The July US CPI report of +0.2% m/m was in line with market expectations.  The July CPI year-on-year figure of +2.7% y/y was unchanged from June and was slightly weaker than expectations for a +0.1 point increase to +2.8%.  The July US core CPI report of +0.3% m/m was in line with expectations.  The July year-on-year core CPI figure of +3.1% y/y was up from June's +2.9% and was slightly stronger than market expectations of +3.0%.  July's headline CPI of +2.7% y/y and core CPI of +3.1% y/y were up from the post-Covid 4.25-year lows of +2.3% and +2.8%, respectively, posted earlier this year.

Despite the neutral CPI report, the 10-year T-note yield today rose +2.5 bp to 4.310% on concern about a new attack by President Trump on Fed Chair Powell.  Mr. Trump said in a Truth Social post today that he is considering allowing a lawsuit against Mr. Powell related to construction work at Fed buildings.  The markets are concerned about the inflation risks involved with the attempt by the Trump administration to push Mr. Powell out of the Fed as a means to push interest rates lower. 

In recent tariff news, President Trump extended the tariff truce with China, which was to expire on Tuesday, for another 90 days.  Last Wednesday, President Trump announced that he will impose a 100% tariff on semiconductor imports.  Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US.  However, the US will levy a separate tax on imports of electronic products that employ semiconductors.  Also, President Trump announced last Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India's purchases of Russian oil.  Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced "within the next week or so." According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced. 

Federal funds futures prices are discounting the chances for a -25 bp rate cut at 96% at the September 16-17 FOMC meeting and 58% at the following meeting on October 28-29.

EUR/USD (^EURUSD) is up by +0.23% due to dollar weakness. However, sentiment on the euro remains cautious due to the negative impact of US tariffs on the European economy. Also, market expectations are low for any significant progress at Friday's Trump-Putin summit in Alaska.

Swaps are pricing in a 5% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting.

USD/JPY (^USDJPY) is up +0.14% on dollar weakness.  The yen continues to be undercut by concern that US tariff policies will harm the Japanese economy.

December gold (GCZ25) today is down -25.2 (-0.75%), and September silver (SIU25) is down -0.152 (-0.39%).  Precious metals prices are lower on reduced concern about the inflation outlook after today's CPI report was largely in line with market expectations.  Gold prices also continue to see weakness after President Trump on Monday said that imports of gold will not face tariffs, easing supply fears.

On the positive side, precious metals prices have support after the markets boosted the chances for a Fed rate cut after today's CPI report.  Also, precious metals prices have safe-haven support related to President Trump's tariffs and geopolitical risks, including the conflicts in Ukraine and the Middle East.

Fund buying of precious metals continues to support prices after gold holdings in ETFs rose to a two-year high on Monday, and silver holdings in ETFs reached a three-year high last Friday.