The USD fell after the US CPI report, but is now stabilizing as the market absorbs the news. The report met expectations, showing goods inflation at 0.2%, which hasn’t increased due to tariffs, while services inflation came in at 0.4%. US stocks are doing well in premarket trading: the S&P rose by 30 points, the NASDAQ increased by 99 points, and the Dow gained 177 points. Initially, US Treasury yields dropped but have now risen again.

Treasury Yield Update

The 2-year yield is steady at 3.753%. The 5-year yield has gone up by 1.8 basis points to 3.839%. The 10-year yield increased by 2.7 basis points to 4.300%. The 30-year yield is up by 4 basis points, now at 4.882%. A technical analysis video covers key currency pairs, including EURUSD, USDJPY, GBPUSD, USDCHF, USDCAD, and AUDUSD. It reviews current trends, potential risks, and target levels for each pair to help with market understanding. The key point from today’s inflation report is that persistent services inflation is the biggest issue. The 0.4% monthly rise in this category makes it hard for the Federal Reserve to ease its stance, maintaining pressure for a “higher for longer” interest rate policy. This mirrors the challenges from 2023 and 2024, when managing service inflation proved tougher than goods inflation. With the current annual inflation rate at 3.4% and a strong job market adding over 210,000 jobs in July 2025, the case for rate cuts soon is weak. We expect the Fed to keep rates steady at its next meeting.

Derivative Trader Insight

For derivative traders, the recent rise in Treasury yields is a key signal. The 10-year yield rising to 4.30% shows the bond market is anticipating sustained tight policy. This situation benefits strategies that thrive on a strong US dollar, as its yield advantage over other major currencies remains significant. We predict that the dollar will attract buyers on dips in the coming weeks. Pairs like EUR/USD may struggle to maintain gains above crucial resistance levels, while USD/JPY could regain strength. Traders should look for options contracts that bet on a stable but firm dollar since major breakouts seem less likely compared to a gradual rise. The stock market’s positive initial reaction likely stems from relief that inflation was not worse than expected. However, this optimism may be fleeting, as extended high interest rates could eventually impact corporate earnings and valuations. There’s rising risk for equity markets, and traders may want to consider buying protective put options on major indices like the S&P 500. A significant risk to monitor is the potential for goods inflation to rise later this year. The current low 0.2% reading doesn’t yet account for the full effect of recently implemented trade tariffs. Any indication that these costs are being passed on to consumers could trigger renewed inflation fears and increased market volatility. Create your live VT Markets account and start trading now.

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