- The US CPI report and Fed Chairman Warsh’s dual testimony are in the spotlight.
- Headline inflation is expected to decline, but will the slowdown be surprising?
- Investors should monitor Warsh’s speech for clues about a rate hike in September.
- EUR/USD could return to recent lows if CPI surprises to the upside and WARS appears hawkish.
The dollar is in demand
The US dollar has been one of the main heroes of 2026, with the arrival of new Fed Chair Warsh, adding a slew of bullish catalysts. The dollar index rose in late June to the highest level since May 2025, when the US currency was trying to recover from tit-for-tat tariff announcements.
Crowded data calendar – CPI in the spotlight
Next week’s calendar will be exceptionally busy with a series of printed statements and the first Humphrey Hawkins testimony from Fed Chairman Warsh. Specifically, the latest CPI report ahead of the Fed’s July 29 meeting will be released on Tuesday at 12:30 GMT.
After the strong May reading, given the 20% monthly drop in oil prices in June and despite increased World Cup spending, there is a strong possibility that the headline CPI will slow below the 4% level again, largely erasing May’s jump. Likewise, the core CPI should follow suit with a smaller decline. Both are expected to remain above the 2% inflation target.
Producer price index and retail sales data will follow on Wednesday and Thursday respectively, while the University of Michigan Consumer Confidence Index will complete the picture on Friday. Following a strong PPI report from China, the chances of another strong PPI record cannot be underestimated, while retail sales and the UoM survey could rise on the back of lower energy prices and the impact of the World Cup, especially since this data covers a period when the US Soccer team was leading in the tournament.
Warsh’s testimony stands out
Fed Chairman Warsh will appear before the House Financial Services Committee on Tuesday and before the Senate Banking Committee on Wednesday. Both have a start time of 14:00 GMT and the latter is usually the least active in the market.
Since taking office, the Fed’s interest rate hike expectations have jumped, with Warsh’s post-FOMC press conference, panel discussions at the ECB Forum in Sintra, Portugal and June 17 meeting minutes justifying these hawkish expectations.
Warsh has made it clear that he does not like forward guidance in normal periods and emphasized the Committee’s unease about inflation rising well above target, highlighting that there is work to be done on price stability. The meeting minutes left little doubt that hawks have the upper hand in the FOMC.
Warsh is expected to move along these lines in his dual testimony, which may also highlight his predecessor’s failure to control inflation and claim that the Fed’s position has been distorted by a bloated balance sheet and non-interest rate measures.
Barring a major hawkish surprise that puts a July rate hike on the table, investors will be closely watching for any clues about an expected September rate hike and whether recent labor market data has Warsh worried. If Warsh appears confident about the jobs market, expectations for a rate hike in September may strengthen.
The dollar stabilizes after strong gains
Following the June FOMC meeting, EUR/USD broke the one-year range 1.1470-1.1829, falling to the lowest level since May 30, 2025. With the hawkish stance of the European Central Bank exerting little upward influence on the pair and the Eurozone economy suffering, it is the US dollar that dictates the moves.
Tuesday’s lower inflation rate and Warsh’s reiteration of his recent comments may somewhat impact the dollar’s appeal. However, September rate hike expectations are likely to remain well supported. A test of the recent range lower limit at 1.1470 could be achieved but such a move may be short-lived.
On the other hand, an inflation report that fails to show a significant slowdown and a hawkish stance – for example, by reiterating the Fed’s commitment to price stability while ignoring labor market concerns – could push the EUR/USD towards a recent low of 1.1324.
