The fact that an increasing number of Federal Reserve officials are leaning toward cutting interest rates as early as this fall is putting pressure on the U.S. dollar and boosting risk assets.

However, much will depend on new data on price growth in the U.S. Data due this week will likely show that U.S. consumers experienced a slight increase in core inflation in July, as retailers gradually raised prices on a range of goods subject to higher import tariffs. This modest but noticeable rise in prices could be the first sign of a larger inflationary wave approaching the U.S. economy.

A close examination of the structure of import tariffs and their impact on the consumer market reveals a complex relationship between trade policy, production costs, and final consumer prices. Retailers, aiming to maintain their margins, are forced to pass part of the increased costs onto consumers, inevitably affecting the overall price level. However, import tariffs are only one factor influencing inflation. Labor shortages and high raw material prices also contribute to higher production costs and, consequently, to consumer price growth.

The core consumer price index, considered a measure of underlying inflation as it excludes volatile food and energy prices, is expected by many economists to rise by 0.3% in July. In June, the core consumer price index increased by 0.2% compared to the previous month. While this would be the largest gain since the beginning of the year, cheaper gasoline is expected to help limit the overall CPI increase in July to 0.2%. The report will be released tomorrow.

Higher U.S. tariffs introduced by Donald Trump have begun to affect consumers in categories such as household goods and leisure products. However, a separate measure of inflation for core services remains moderate for now. Nevertheless, many economists expect that rising import tariffs will gradually weigh on consumer demand.

This is the dilemma facing Federal Reserve officials, who have kept interest rates unchanged this year in the hope of gaining clarity on whether tariffs will lead to sustained inflation.

At the same time, the labor market — the second pillar of their dual mandate — is showing signs of losing momentum. As concerns grow about the labor market's resilience, many companies are exploring ways to limit the impact of tariffs on price-sensitive consumers. Economists expect that government data to be released on Friday will show a significant increase in retail sales in July, as stimulus measures boosted auto sales and Amazon Prime Day sales drew online shoppers. The continuation of such trends would be another reason for prices to rise in the coming months.

As for the current technical picture for EUR/USD, buyers now need to work on breaking above 1.1690. Only then will it be possible to target a test of 1.1730. From there, the pair could climb to 1.1760, though doing so without support from major players will be quite difficult. The ultimate target would be the 1.1800 high. In case the instrument declines, I expect significant buying activity only around 1.1655. If no buyers appear there, it would be better to wait for a retest of the 1.1610 low or consider opening long positions from 1.1565.

As for the current technical picture for GBP/USD, pound buyers need to break through the nearest resistance at 1.3470. Only then will it be possible to target 1.3502, above which a breakout will be challenging. The ultimate target would be the 1.3540 level. In case the pair falls, the bears will attempt to take control of 1.3420. If they succeed, breaking this range would deal a serious blow to the bulls' positions and push GBP/USD down to the 1.3375 low, with the prospect of reaching 1.3350.