Dollar Steadies Ahead of PPI Data

The dollar index steadied around 99.9 on Thursday after experiencing heightened volatility in the previous session, as investors looked ahead to July’s producer inflation report for further clues on recent price trends. Data released Wednesday showed US consumer inflation slowed for a second consecutive month to 3.4% in July, while rising just 0.1% from the previous month. Markets now see around a 40% chance of a 25 basis point rate hike from the Federal Reserve in September, down from nearly 50% a day earlier. Meanwhile, investors continued to assess prospects for a deal to reopen the Strait of Hormuz, although escalating rhetoric between the US and Iran amid deadlocked negotiations reduced the likelihood of an imminent agreement. Elsewhere, traders remained alert for potential intervention to support the yen as the currency approaches the 160 level against the dollar.

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.”