Yo, fam, the U.S. Consumer Price Index for July 2025 came through with some mixed vibes, but mostly as expected. Headline inflation kept it chill at 2.7% year-on-year, while the core CPI had a lil' glow-up to 3.1%. 🌟

This data low-key confirmed that tariffs ain't messin' up consumer prices too much, giving the Fed space to worry ‘bout the struggle bus labor market. September rate cuts? Looking pretty likely. 👀💸

Now let's peep which currency pairs from our watchlist made the most of this dollar weakness and new rate cut dreams:

Watchlists are 🔥 discussions on price moves & game plans backed by some solid fundamentals & sweet technicals, a crucial step towards owning that premium discretionary trade idea before you even think about a risk & trade management plan.

If you wanna ride along with our “Watchlist” picks as they drop throughout the week, hit up our BabyPips Premium subscribe page for the deets!

The Setup

• What We Were Watching: U.S. CPI Report for July 2025

• The Expectation: Headline CPI to level up to 2.8% from 2.7%, core CPI expected to glow up to 3.0% from 2.8%, with markets looking for any signs of tariff-induced inflation drama

• Data outcome: Headline CPI chillin' at 2.7%, core CPI glowing up to 3.1%, tariffs ain’t really flexing on goods prices

• Market environment surrounding the event: Dollar feeling the heat from weak job data and Fed's low-key words, markets seeing 85%+ vibes for September rate cuts, tariff drama still lurking

Event Outcome

The July U.S. inflation report served up a market-friendly outcome despite the headline being a bit of a mixed tape. Core inflation was running like it was on TikTok, but mostly everyone was vibing on the limited tariff wave hitting consumer prices, letting the Fed breathe easy. 😎💼

Key points from the U.S. CPI report:

• Tariff impact contained: Even with trade deal drama, companies were like "Not today, tariffs," and handled the costs without throwing it on us
• Services inflation persistent: Plane tix price skydived up 4.0% last month and medical care wasn't far behind at 0.7%, just keeping that pressure in the game
• Goods deflation helped: Energy prices took a step back 1.1% month-on-month letting us catch that breathe air unlike services occupying the fast lane
• Housing moderation continued: Shelter costs gave a chill vibe, growing just 0.2% again this month—showing homes settling down a bit
• Mixed tariff-exposed sectors: While appliances dipped 0.9%, rides and fresh car prices solid despite the tariff scene popping

The data painted a mural of an economy where biz is handling import cost heat, with inflation holding a cool vibe, giving the Fed another chance to focus on those job 💼 challenges over price worries.

Fundamental Bias Triggered: Dollar getting ghosted by major pairs

Broad Market and Exogenous Drivers:

The markets rolled into the CPI drop with the dollar already sweating from last week’s job ops flop - only 73,000 added jobs when 100k was the expected party. Fed heads like Kashkari and Daly came through the door like "Time to chop those rates in September," amping up markets for September scene cuts. 😳🔪

As if that wasn't enough TikTok action, Trump’s ramping up tariffs, hitting up everybody like China, Switzerland, semis, and pharma, just as the 90-day truce was running low. This set a super complex vibe where the basic story was “bad is the new good” for those rate cut dreams, while trade talk added a sprinkle of drama. 🎭

Treasury Secretary Scott Bessent was all about that 50 basis-point chop, cranking the volume, while Trump's hints about choosing Powell's successor sooner rather than later stirred more unknowns, weighing heavy on the greenbacks. 😬

The risk environment went from low-key optimistic on trade chit-chats to heavy concern about that global trade tea spilling over, making currency moves hypersensitive to any whispers of Fed easing space. 🗣️

Scenario Scorecard: How Did They Play Out?

 GBP/USD: Net Bearish USD Event outcome + Risk-On Scenario = Arguably the best odds of a net positive outcome

GBP/USD 1-hour Forex Chart by TradingView

GBP/USD was chillin' near the 1.3450 psychological spot pre-CPI, with the vibes strong thanks to higher lows along that trendline since early August.

With the CPI event flipping dovish, GBP/USD shot up above short-term resistance like it's on a rocket, blasting through the 1.3500 barrier within minutes. It nearly hit our R2 target at 1.3580 before folks started cashing out.

This setup was chef’s kiss because the fundamentals just synced so beautifully. As Fed rate cut buzz built up and Treasury yields crumbled, traders were all about that policy divergence. The BOE's hawky stance from last week looked more appealing than ever—totally clutch for the sterling.

Technicals nailed it too. Rising trendline support around 1.3420 was the hype we needed for launch, while flying past 1.3500 likely triggered technical buys, lifting the GBP/USD rally into Thursday.

By week's end, GBP/USD was holding above 1.3550, bagging some sweet gains and supporting the bullish setup when both fundamentals and technicals were besties. 👯‍♂️💪

Not Eligible to move beyond Watchlist – Bullish USD Setups and USD/CHF bearish setup

USD/CHF Net Bearish USD Event outcome + Risk-Off Scenario

USD/CHF 1-hour Forex Chart by TradingView

This setup was canceled thanks to the risk-on vibe that rolled in after the US CPI basically told the Fed "go ahead and cut in September" bold and clear. Still, this pair kept us watching from a technical perspective. 📊💥

Before the CPI drop, USD/CHF nudged into resistance, then flipped back, falling to the .8024 S1 Pivot after inflation data hyped a dovish Fed outlook. That's when technical buyers spotted the opportunity, lifting USD/CHF to the chat zone/weekly pivot and chopped sideways from there.

USD weakness was a go even in the broader market scene with the US CPI event painted as a major baller type deal, with traders who hit it right seeing net positives with moderate risks in mind.

USD/JPY Long: Net Bullish USD Event outcome + Risk-On Scenario 

USD/JPY 1-hour Forex Chart by TradingView

The event didn’t favor a bullish USD effect, with everybody singing the same soft headline CPI song and feeling those Fed cut whispers.

USD/JPY was already flirting with range support tests but ended up swinging upward busting range boundaries before inflation news even slipped. The drop in CPI transformed Fed cut dreams into solid plans, pushing Treasury yields lower and giving non-USD peeps like yen a well-earned boost.😎🗜️

The pair dipped to 146.30, crashing below range support, helped by Bessent’s BOJ rate lift comments. But come Thursday, that feverish PPI print scratched off some rate cut rumors, flexing up the dollar and letting USD/JPY return to its cozy consolidation crib.

EUR/USD Short: Bullish USD Event outcome + Risk-Off Scenario 

EUR/USD 1-hour Forex Chart by TradingView

The USD-hype scenario fizzled for this Watchlist entry, as chill US CPI only hyped September rate cut buzz, dragging the greenback. 👋💥

EUR/USD didn’t hit the 1.1700 to 1.1750 short entry zone till the CPI overshadowed its dollar story. Between mixed Euro Area inflation and GDP figures, the euro really didn’t vibe any better midweek.

The setup was still hanging nearby, leaving traders who took the shot with a suspenseful plot twist just days after the event.

The Verdict

The U.S. CPI event played the dollar drop just as expected, with GBP/USD standing out as the Watchlist star among our top picks. With steady consumer price reads, minimal tariff impact, and swelling Fed-BOE policy divergence, the scene was set for Cable to shine.

However, when Thursday’s PPI came through, it hit like a reminder that this inflation ride is wild and unpredictable in a tariff world. Consumer prices played it cool, but wholesale pressures are cooking up fun twists for the Fed’s upcoming moves. 🔥

For those traders who bounced perfectly into a GBP/USD rise with those risk smarts on lock, it was a great run. And if you rolled with the shocks—ahead of the PPI twist Thursday—you came out on top against the curveball of a longer-than-a-day story.

In the wrap-up, this analysis was “highly likely” to swing out a juicy net positive, given strong momentum moves despite the hiccup. The market sealed the week well above post-event and chat zones. 🌟💰

Key Takeaways:

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