U.S. Dollar selling is overdone on the collapse of U.S. inflation. El nino and climate change are playing havoc with energy (electricity) consumption. Sooner or later this will spill back into inflation expectations.

On the expectations of U.S. inflation, the June 2023 Consumer Price Index, albeit in its overall flawed metrics, came in at 3% from 4% (May 2023),which is astounding collapse in what was four decade high inflation rates that occurred in 2021 and 2022.  Of course one should be doubtful of the CPI application, while being aware the impact that declining inflation expectations had on U.S. dollar selling.  The U.S. dollar did sell off spectacularly on the very low June CPI numbers. 

The above chart shows the U.S. dollar (bar chart), CPI (Baseline chart: green and red line), interest rates (white line) and the electricity use (blue line).  As you can see, the USD has diverged from U.S. interest rates since November 2022, when both were in tandem when the Federal Reserve committed too its 25 basis point increases, until they reached their terminal rate, which appears, at this point in time to be at 5.50% (current is 5.25%).  The market, as a future indicator has, obviously, overstretched expectations that the Fed have finished with their interest rate cycle, hence the dramatically selling of USD's.  The market is probably incorrect that inflation is at bay, more so, as mentioned in this post, was President Biden's SPR release in March 2022 at 1 million barrels per month and the European Union stockpiling tons of Natural Gas with energy price caps, that reduced the price of energy, thus offsetting consumer prices on energy; thus it appearing as a reduction in inflation.  All and all this is a temporary glitch.

The Northern Hemisphere is facing one of the worst heatwaves in history, due to El Nino and exasperated by Climate Change. The blue line (above chart) shows U.S. electricity use which is parabolic and as most people know, high electricity use correlates with higher Natural gas and Oil prices.  Add this into the equation of a declining USD, and you'll have inclining energy costs past onto the consumer.