The U.S. dollar declined on Wednesday, extending its retreat after a modest inflation report strengthened expectations that the Federal Reserve could lower interest rates next month.
At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against six major currencies, slipped 0.4% to 97.540, following a 0.5% drop in the previous session.
Markets Eye September Rate Cut
Data released Tuesday showed U.S. consumer prices rising only slightly in July, highlighting the limited effect of the Trump administration’s tariffs on inflation. This has boosted expectations that the Fed may cut rates at its next policy meeting.
Investors are now pricing in a 98% probability of a rate reduction in September, pressuring the dollar lower.
“At this stage, the dollar has few bullish arguments to hold onto. Upcoming surveys might paint a better activity picture, but it’s all about the jobs market now: a substantial recovery in the dollar from these levels appears realistic only if jobs figures turn significantly stronger,” analysts at ING said in a note.
The economic calendar is light for the day, though a producer prices gauge for final demand is scheduled for Thursday, followed by U.S. retail sales and consumer sentiment data on Friday.
“The proximity to the Trump-Russia summit on Friday and recent reassessment of the chances of an imminent ceasefire mean the dollar may not fall much further for now,” ING added.
Euro Rises Against Dollar
In Europe, the euro gained 0.3% to 1.1712 against the dollar, building on a roughly 0.5% rise in the prior session.
Spain’s EU-harmonized inflation for the past 12 months rose to 2.7% in July from 2.3% in June, while Germany’s equivalent remained at 1.8%.
“EUR/USD’s bullish case is stronger after yesterday’s US inflation report. However, a break above might be delayed until after the Trump-Putin meeting on Friday,” ING noted.
GBP/USD also climbed 0.4% to 1.3560, after data indicated that U.K. wage growth stayed elevated, reinforcing the Bank of England’s cautious stance on cutting rates.
Yen Strengthens Following PPI Data
Elsewhere, USD/CNY remained largely unchanged at 7.1763, after earlier declines this week following the U.S. and China’s announcement of a 90-day extension to their temporary trade agreement. U.S. officials said negotiations with Beijing will resume in the coming months.
USD/JPY fell 0.2% to 147.46, with the yen gaining after producer prices came in slightly stronger than expected, raising the possibility of additional rate hikes by the Bank of Japan.
AUD/USD advanced 0.4% to 0.6551, with the Australian dollar climbing despite the Reserve Bank of Australia cutting its benchmark rate on Tuesday—its third reduction this year.
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