The U.S. dollar rose yesterday against a number of risk assets, despite core inflation in June rising less than expected. Inflation has been increasing for the fifth consecutive month, and the data suggests that companies are beginning to more deliberately pass some of the tariff-related costs on to consumers.

The Consumer Price Index (CPI), excluding the often-volatile food and energy categories, rose by 0.2% compared to May. Although a drop in car prices helped contain overall growth, product categories affected by President Donald Trump's tariffs — including toys and household appliances — posted the fastest price increases in recent years.

The report provides limited clarity for Federal Reserve policymakers, who remain divided over whether the tariffs will lead to a one-time price shock or something more prolonged. Still, the data offers evidence of tariff pass-through for officials inclined to keep interest rates high, while offering little justification for those pushing for cuts. Investors continue to expect the central bank to leave interest rates unchanged at its meeting in two weeks.

It's worth noting that June marked the fifth month since tariffs were imposed on the U.S.'s three largest trading partners without triggering an inflationary spike. Nonetheless, the Fed likely needs more confirmation that inflation remains under control, so there's little reason to expect surprises at the end-of-month meeting. However, if current trends persist, the result could increase pressure for a rate cut in September. In any case, another inflation report will be published before then, so no major shift is expected in the Fed's current stance just yet.

Goods prices excluding food and energy rose by 0.2% after stalling the previous month. Toy prices saw their fastest increase since early 2021, while prices for household items and sporting goods rose the most since 2022. Prices for household appliances posted the largest increase in nearly five years. Meanwhile, prices for both new and used cars declined. Omar Sharif, President of Inflation Insights LLC, noted that excluding automobiles, core goods prices rose 0.55% in June — the highest monthly gain since November 2021.

Even so, many inflation indicators coming in below expectations raise questions about how broadly Trump's tariffs will affect consumer prices. Some companies were able to shield customers by stockpiling goods ahead of the tariffs or offsetting rising costs through lower margins. Service prices excluding energy rose 0.3%. In recent years, the largest contributor to service inflation has been the housing category. However, housing cost growth has slowed due to falling hotel prices.

The report also noted that another service price index closely watched by the Fed — one that excludes housing and energy costs — rose by 0.2%, driven in part by a notable increase in hospital service prices.

Still, the risk of a delayed Fed rate cut was reflected in the currency market, leading to a stronger dollar and a decline in several risk assets.

As for the current EUR/USD technical picture, buyers now need to break above the 1.1625 level. Only then will a test of 1.1660 become possible. From there, a move toward 1.1690 could follow, though achieving this without strong support from major players may prove difficult. The furthest target remains the 1.1720 level. In the event of a decline, I expect meaningful buyer activity near 1.1590. If no strong interest is seen there, it would be better to wait for a retest of the 1.1550 low or to open long positions from 1.1495.

As for GBP/USD, pound buyers need to break through the nearest resistance at 1.3420. Only then can they aim for 1.3464, a level that will be difficult to surpass. The furthest target would be the 1.3500 level. If the pair falls, bears will try to regain control of the 1.3375 level. If successful, a break below this range would deal a serious blow to the bulls' positions and push GBP/USD toward the 1.3335 low, with the potential to reach 1.3290.