Sticky CPI Shakes Markets: USD Surges, Gold Lags & Rate Cuts in Doubt

The latest US CPI data is a mixed bag on the surface but tells a clearer story when I dig deeper. The month-over-month CPI comes in at 0.3%—right on expectations. The core CPI prints at 0.2%, a touch below the 0.3% forecast but still higher than last month’s 0.1%. Year-on-year, the headline CPI jumps to 2.7% (from 2.4%), beating expectations, while core CPI edges up to 2.9%—below forecast but still higher than the prior.

Even when a few releases surprise to the downside, every single metric is higher than the previous, confirming the persistence of inflation.

I dig under the hood and see that the primary inflationary pressures are tariff-driven. Shelter costs rise 0.3% and remain a key inflation driver—this alone makes up over one-third of the CPI basket. Transport prices also climb 0.4%, likely reflecting the cost impact of tariffs. Apparel and household goods are also up 0.4%, again pointing to rising import costs.

Despite some optimism at the surface, inflation isn’t cooling meaningfully. The Fed is still facing sticky pricing pressures. That’s why I see expectations for rate cuts being walked back. CME FedWatch now shows only a 2% chance of a rate cut this month. The market now prices just one 25bp cut before year-end—down from expectations for 75bps just weeks ago.

As expected, the US dollar rallies after the data, confirming my bias. DXY jumps after a brief pause and consolidates higher. I’m looking for shorting opportunities on EUR/USD, GBP/USD, and AUD/USD. The only trade lagging is my long gold position, which I still believe in structurally, but timing is key. I don’t see the capital rotation needed yet for a sustained move higher in gold.

Looking forward, I stay bullish on the dollar. Any dips are buying opportunities. I’m especially focused on USD/JPY for longs and staying short anything major against the USD.

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