Dollar Gains on Inflation Data, Rate Hike Odds Tumble

The US dollar gained ground on Wednesday as traders reacted to US consumer price inflation data for July. The Consumer Price Index (CPI) rose 3.4% in the 12 months through July, matching economists' expectations. Core CPI increased by 2.5%, while Fed funds futures traders reduced their bets on a rate increase at the Federal Reserve's September meeting.

The greenback has been bolstered by higher oil prices due to concerns over the Strait of Hormuz, which is under discussion for potential opening. The dollar index rose 0.17% to 99.98, with the euro down 0.14% at $1.1524.

Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that the soft jobs data on Friday did not lead to a weakening of the dollar, as expected. The focus now shifts to Thursday's producer price inflation data and Friday's retail sales figures for further insight into US economic trends.

Traders see a 56% probability of a rate increase by October, according to Chandler, who believes that Fed Chairman Kevin Warsh might prefer markets to focus on less explicit forward guidance. This could shape the timing of any hike.