The US inflation expectations index rose to a one-week high.

According to inflation expectations measured by the 10-year and 5-year breakeven inflation rates published by the St. Louis Federal Reserve Bank (FRED), the US inflation expectations validate the market's latest preference for the US dollar. This is because early signals of US price pressure have recently become more resilient.

In other words, the 10-year breakeven inflation rate measured by FRED continued its rebound from last Friday, reaching 2.23%, the highest level since May, while the 5-year inflation expectations index followed suit and closed higher at a one-week high of 2.22% during the US session on Monday.

Given the rise in US Treasury yields and strong recent inflation signals, the US Dollar Index remains near its year-to-date lows but is still above 101.00.

However, this week, the market is maintaining a cautious sentiment and pushing USD buyers ahead of the release of the US Consumer Price Index. Meanwhile, concerns about US debt default and the prospect of a dovish Fed rate hike, not to mention mixed nonfarm payroll data, have dampened market sentiment.

Most importantly, with a key US inflation release on the horizon, economic events are light and market sentiment is cautious. After a tumultuous week, the market is maintaining a range-bound state, challenging the recent USD trend even as inflation signals suggest rising prices.

Also in focus today: the Australian and New Zealand Dollars continue to show strength, while the USD gains support from rising US Treasury yields.