Dollar Gains on Soft CPI, Markets Ease Fed Hike Bets; Aussie and Euro Hold Steady

The US dollar edged higher on Thursday as a modest 0.1 % rise in July’s consumer price index matched expectations, prompting traders to trim their bets on a September Fed rate hike. The currency is up 0.4 % against a basket of majors this week – its first weekly gain in three weeks – though the range remains tight, a typical August pattern.

CME Group’s FedWatch shows the probability of a September rate increase fell to 40 % from 54 % a week earlier, reflecting the market’s reaction to the benign CPI data.

Market participants are now looking ahead to July’s wholesale inflation. The producer price index is expected to cool to 4.9 % from 5.5 % in June, and core personal consumption expenditures, the Fed’s preferred gauge, will be released on August 26.

Fed Chair Kevin Warsh has signalled a broader view on inflation, but until a new benchmark is set, markets will continue to weigh CPI, PPI and core PCE.

CIBC Capital Markets’ Jeremy Stretch noted, “We’re in a world where the Warsh Fed chairmanship is going to see a more holistic approach to inflationary dynamics, so broadening out beyond core PCE as being an inflation benchmark. But ultimately, that’s where we are at the moment.”

Against the yen the dollar slipped to about 159.3, roughly 2.7 % below the 40‑year high of 164 that triggered a historic joint intervention by the US and Japan in late July.

The euro ticked up slightly to US$1.1537, while the pound held steady at US$1.349, shrugging off data that showed UK GDP grew 0.4 % quarter‑on‑quarter in June, lifting the first‑half annualised rate to 2 %.

Norway’s krone weakened after Norges Bank left rates unchanged, despite recent inflation easing. With a 4.25 % rate, Norway remains one of the highest‑rate economies among the G10, and its oil and gas exports give the currency an edge this year.

Australia’s currency also gained modestly, reflecting a hot consumer price index and a buoyant market sentiment toward the region’s economic outlook.