Dollar Advance Stalls as Fed Hike Bets Pare Down

The dollar's advance stalled on Thursday after a benign U.S. inflation reading led traders to reduce bets for a near-term Federal Reserve interest rate hike.

According to CME Group's FedWatch, the odds of a September rate hike dropped from 54% last week to 40% following the July consumer price index (CPI) release, which showed a 0.1% increase in line with economists' expectations.

MUFG currency strategist Michael Wan said the primary dilemma for the Fed is weighing inflation risks against a softening labor market, particularly after the weaker-than-expected July payrolls report.

Despite this, the dollar index, which measures the U.S. currency against the yen and five other major peers, was flat at 100 on Thursday but still on track to gain about 1% for the week.