DXY Retreats After Inflation Data

The dollar index eased to around 99.9 on Wednesday after US consumer prices rose broadly in line with expectations in July, easing concerns over imminent Federal Reserve rate hikes. Core consumer prices, excluding food and energy, rose 0.2% month-on-month and 2.5% year-on-year, matching the slowest annual pace since March 2021. Overall, consumer prices increased 0.1% from June and 3.4% from a year earlier. The moderation in inflation, following last week’s weaker-than-expected jobs report, could ease pressure on the Fed as policymakers balance price stability against risks to employment. The latest figures also provided some relief amid elevated oil prices and geopolitical uncertainty. Meanwhile, tensions over the Strait of Hormuz remained high, with President Donald Trump claiming the US had “total control” of the waterway as Washington and Tehran remained locked in negotiations over its reopening.

The dollar index edged toward 99.9 on Wednesday, posting modest gains as investors braced for key inflation readings that will likely influence the Federal Reserve’s next policy move. The consumer price index report is due later today, followed by producer inflation data on Thursday. Markets remain divided over whether the Fed will raise rates by 25 basis points in September after keeping them unchanged in July, with rising oil prices reinforcing a hawkish bias. On Tuesday, Chicago Fed President Austan Goolsbee also said the central bank is more concerned about inflation remaining too high than potential weakness in the labor market. On the geopolitical front, investors assessed the prospects of a US-Iran deal to reopen the Strait of Hormuz after Pakistan’s defense minister said Washington and Tehran are “close to some sort of arrangement.”

The dollar index was at the 99.8 mark on Tuesday, holding the rebound from the two-month low of 99.5 on Friday amid fresh pressure on the yen, while markets further assessed the Federal Reserve's policy outlook. Markets mounted on short positions on the Japanese currency after the US Treasury completed its joint intervention on the foreign exchange market with Tokyo. Treasury Secretary Bessent had bought yen with euros in the Exchange Stabilization Fund to prevent Japan from selling more US bonds to defend their currency, but mountain fiscal pressures for Japan and the surge in US long yields drove the dollar to rebound against the yen. Meanwhile, Cleveland Fed President Hammack reiterated her view that a Fed hike is appropriate to combat inflation ahead of tomorrow's CPI report. The data is expected to show that core inflation measures should slow for a second month. Still, the elevated levels of wholesale energy commodities challenge the argument for a hold.