Dollar Steady After July CPI Prints 3.4%; Pound Tests $1.35

The US dollar held near familiar levels after July inflation matched forecasts. The annual headline rate came in at 3.4% on 12 August, and core inflation also met consensus. The lack of a surprise kept volatility contained, and mid-August trading is seasonally thin.

Most major components of headline inflation were flat on the month. Fuel prices rose less than in June, while rents and food were roughly in line with the prior month. The inflation report followed a weaker-than-expected payrolls number. Michael Stark, financial content lead at Exness, wrote that with the job market no longer heating up and annual headline inflation below the Fed's policy rate, the central bank has no immediate reason to hike at its September meeting. Inflation has now declined for two consecutive months.

As of 13 August, CME FedWatch data cited by Stark put the probability of a hold on 16 September at about 64%. A narrow majority, around 52%, still prices in at least one hike by 28 October. The chance of a hold through 2027 has risen and sits near 28%.

The Fed's July meeting minutes are due on 19 August. Stark wrote that they are unlikely to shift the picture, because the meeting predates the weak payrolls report and the latest inflation data. Unless Gulf tensions escalate or sentiment changes clearly, major markets are likely to stay quiet for the next few days, he said.

Sterling, tracked in the GBP/USD profile, hovered just below $1.35 after a slightly stronger UK GDP number on 13 August. The level is resistance and is being tested. A clean breakout this week is unlikely, Stark wrote. Volatility is close to its minimum and volume is seasonally low. Slow stochastics are overbought, he said. If the pair breaks higher later, May's highs near $1.36 would be the next target, he said. Monetary policy offers no obvious input for now, according to Stark, with the Fed and the Bank of England likely to keep rates near 3.5% to 3.75% for the near future.

Support starts with the moving-average cluster around $1.343, where the 100- and 200-day SMAs have bunched together. The 23.6% weekly Fibonacci retracement near $1.335 is a stronger floor, according to Stark. The upcoming UK jobs report and inflation figures would need to surprise to produce a move; clearer signals are unlikely before early next month, he wrote.

The Australian dollar has held its ground since early August after the RBA said it stands ready to hike again if needed. Rates are already up 0.75% in 2026, a restrictive setting that Stark said is drawing carry demand into the Aussie. The 100-day SMA near 70.6 US cents has capped the pair for several days. A break above that level in mid-August is doubtful on current volume, Stark wrote.

The AUDUSD chart pattern resembles cable's, Stark wrote. The fundamental context differs. When volume returns in late August or early September, the Aussie may be a better buy than sterling, he said. Near-term support is the 70-cent area, with the 200-day SMA behind it.

May's high on the AUDUSD chart sits more than two cents above the current price, so a confirmed break above resistance would leave room for a move toward that high, he said.

The 100% weekly Fibonacci retracement just below 69 cents marks a broader support zone, Stark wrote.