Although NFP showed that the US economy continues to hire at a robust rate markets were surprised by an overshoot in Unemployment Rate to 4% and a slower than anticipated wages growth pace.

Average Hourly Earnings rose by 5 cents to $26.98, a 2.7% YoY, or 0.2% MoM versus an expected 0.3%, driving Dollar down.

With inflation increasing 0.2% last month, marking a May 2012 record and a change of 2.9% YTD, Fed remains indeed on track in delivering another interest rate hike, but with Dollar having been knee-jerked lower following the NFP it is certain that a good CPI report in July will have FOMC members returning back from the nascent sell-off more confident and anti-pressured.

A positive Consumer inflation report this Thursday could see the markets returning back to pre-NFP levels and the probability of two more hikes increasing further.

This should enable buck-dominated pairs to decline and position Dollar for decent longs as higher inflation will bring more pressure for hiking rates and drive Dollar’s value higher ahead of August 1st FOMC Meeting.

If Core Inflation jumps from 2.24 to 2.3% then Core PCE, the Fed’s favorite inflation measure, will most likely reach the 2% target as it currently stands at 1.96%, lagging only 0.28%.

This would imply a much stronger boost on the buck and further gains on increased chances of interest rate hikes, reiterating the Fed’s path to gradual policy normalization.