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The Dow Jones Industrial Average (DJIA) fell back on Monday, shedding around 200 points and testing below 44,000 once again as investors brace for the latest United States (US) Consumer Price Index (CPI) inflation figures due on Tuesday. Markets have fully priced in an interest rate cut at the Federal Reserve’s (Fed) next rate call on September 17, but a resurgence of inflationary pressure could put a pin in rate trim hopes.

The Dow’s Monday pullback has pushed the major equity index one step closer to a consolidation phase, with the Dow cycling between 44,400 and 43,600 following a technical bounce from the 50-day Exponential Moving Average (EMA) near 43,720. The Dow Jones still remains down about 2.5% from all-time highs posted near 45,130, but the index is planted firmly in bull country north of the 200-day EMA near 42,500.

Fed rate cut hopes could face challenges from rising inflation

According to the CME’s FedWatch Tool, rate traders are pricing in nearly 90% odds of at least a quarter-point rate cut on September 17. However, market hopes for back-to-back rate cuts are still under threat: rate markets are only pricing in around 50% odds of a second interest rate trim on October 29.

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US CPI inflation data from July is due on Tuesday and will draw far more investor attention than usual. Headline and core CPI inflation is expected to tick higher on an annualized basis, and investors will be hoping that an inflation upswing will remain slim enough to not knock the Fed off of its current trajectory on rate cuts. Headline CPI inflation is expected to rise to 2.8% YoY from 2.7%, while core CPI is forecast to tick up to 3.0% YoY from the previous 2.9%.

Dow Jones daily chart

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