The CPI growth report published on Wednesday in the US was not in the greenback's favor. The "headline" figures came in at the forecasted level, but that did not make life any easier for dollar bulls. In fact, the release reflected a slowdown in inflation — both headline and core.

Thus, the overall consumer price index in July stood at 3.4% year-on-year, after falling to 3.5% in June. By comparison, in May the headline CPI was 4.2% year-on-year, so the deceleration is indeed striking. In month-on-month terms, the indicator rose by only 0.1% in July, after a 0.4% decline in the previous month.

For the second consecutive month, the core CPI, which excludes food and energy, also declined. In May it hit a seven-month high at 2.9% year-on-year, then eased to 2.6% in June, and finally to 2.5% in July. In month-on-month terms, the core index rose 0.2%, after zero growth in June.

And although all the headline indicators matched forecasts, another point is important for the market in the current circumstances: July's data did not confirm fears of a renewed acceleration of inflation in the US.

The main monthly "accelerator" of CPI was the shelter component. The corresponding sub index (shelter) rose 0.1%, accounting for roughly two-thirds of the month's overall CPI increase. At the same time, the dynamics here remain fairly moderate: rents and the implied cost of housing rose 0.3% month-on-month, while in year-on-year terms shelter increased by 3.2%. This remains noticeably above the Federal Reserve's target, yet July's figures do not provide grounds to speak of a new acceleration in housing inflation.

Another source of upward pressure was the services sector. In July, medical services, air travel, communications and education became more expensive. Airfares stand out especially, rising 2.2% month-on-month and immediately 25.5% year-on-year. Medical services gained 0.6%, and services excluding energy rose 0.2% overall.

At the same time, many components worked to slow inflation. First and foremost, this concerns food. The food index rose only 0.1%, while groceries for home consumption fell by 0.1%. Prices for meat, poultry, fish and eggs declined most noticeably (on average by 0.7%), while fruits and vegetables fell 0.1%. All this indicates that the food segment did not add extra inflationary pressure in July.

Yet the main July surprise in the CPI structure was the energy component. The energy index fell 1.5% last month, and gasoline prices dropped by 2.9% immediately. This is particularly important given July's context: the month saw another escalation in the Middle East and sharp moves in the oil market, so energy could have become one of the main pro-inflationary risks. With renewed US air strikes and retaliatory actions by Iran, Brent repeatedly rose above $90. It might have seemed that energy would be a key source of added pressure on US consumer prices. However, this did not happen: in July's CPI, the oil shock effectively did not materialize, and energy, by contrast, became one of the main factors restraining overall inflation growth.

Of course, it would be premature to draw a categorical conclusion about the complete disappearance of oil risk. As is known, there is a time lag between changes in oil prices and their reflection in retail fuel prices (which means August data could be much more sensitive to developments in the oil market). Nevertheless, the July report is important because it reflects the actual reaction of consumer prices already during a period of heightened geopolitical tension. And we have not yet seen that reaction in the form of a new spike in inflation.

July's CPI should also be viewed in the context of July's Nonfarm Payrolls. Briefly, last Friday's US labor market report showed employment fell by 23,000, and the results for the two previous months were revised down by a total of 103,000. In addition, average hourly earnings rose only 3.2% year-on-year — the weakest pace since May 2021. In monthly terms, wages barely changed, rising just 0.1% (against a forecast of 0.3%).

Thus, July's CPI and NFP together form a fairly coherent picture. Nonfarms pointed to a noticeable cooling of the labor market and weakening wage pressure, while consumer inflation did not accelerate even despite serious geopolitical and energy risks. In other words, on both key fronts — the labor market and inflation — July's data showed an absence of additional price pressure. The weakening of employment and the wage component is occurring alongside a slowdown in consumer inflation.

This combination reduces the probability of further Fed tightening and simultaneously increases the likelihood that over the coming quarters the central bank may consider cutting rates — if July's trends persist.

The EUR/USD pair reacted to Wednesday's release by rising to 1.1563. However, buyers could not test the resistance at 1.1570 (the upper Bollinger Band on the four-hour chart), after which sellers again took the initiative. The downward impulse also quickly faded near the 1.1530 target.

Against the backdrop of persistent uncertainty over prospects for resolving the Middle East conflict, traders remain cautious — both buyers and sellers. Therefore, despite weak CPI and NFP, it is too early to speak of a sustainable trend: the market is waiting for new geopolitical signals that could tip the balance one way or the other. Until such signals appear, the pair will likely remain consolidated in the 1.1520–1.1570 range, the bounds of which correspond to the lower and upper lines of the Bollinger Bands on the H4 chart.