US Dollar Index advances towards 107.20 on higher estimates for the US Inflation

• The DXY marches towards 107.20 as investors see inflation jumping to 8.7%.
• Job additions in the US economy remained higher at 372k than the estimates of 268k.
• Lower earnings by the US households will trim the consumption vigorously.

The US dollar index (DXY) has displayed a decent buying action in early Tokyo after defending the crucial support of 108.86. The DXY witnessed a steep fall on Friday after printing a fresh 19-year high of 107.79. The asset fell sharply after the release of the US Nonfarm Payrolls (NFP).

US Employment data                        

The greenback bulls are expected to underperform despite the upbeat US Nonfarm Payrolls (NFP) data.  The US economy added 372k jobs in June, significantly higher than the estimates of 268k but a little lower than the prior release of 384k. The Unemployment Rate remained in line with estimates and the prior print at 3.6%. No doubt, the outperformance of the US economy on the labor market front will empower the Federal Reserve (Fed) to announce extreme rate hikes without much hesitation.

Higher Consensus for US Inflation

As per the market consensus, the plain-vanilla US Inflation is expected to climb to 8.7% vs. 8.6% reported earlier. However, the core CPI may slip to 5.7% from the prior print of 6%. Higher inflation may strengthen the odds of one more 75 basis points (bps) interest rate hike by the Federal Reserve (Fed), however, the overall demand may take a serious hit. Price pressures are skyrocketing in the US economy, however, earnings are not following a similar pattern. Lower earnings by the US households will trim the consumption vigorously.

Key data this week: US CPI, US core Inflation, Initial Jobless Claims, Producers Price Index (PPI), Retail Sales, and Industrial Production.

Major events this week: Eurogroup meeting, Bank of England (BOE) Andrew Bailey speech, Reserve bank of New Zealand (RBNZ) interest rate decision, and Bank of Canada (BOC) monetary policy.