Dollar Rebounds on Dovish CPI Report
The US dollar index DXY rose by +0.20 (+0.20%) on Wednesday, rebounding from early losses tied to the dovish US CPI report.
The July US CPI report was in line with market expectations, showing a year-on-year easing of inflation to +3.4% y/y from June's +3.5%, and core CPI easing to +2.5% from June's +2.6%.
The risk of a renewed flare-up across the Middle East remains high, providing safe-haven demand for the dollar, but markets are discounting a 40% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16, down from 51% on Tuesday.
The yen failed to get much benefit from the dovish US CPI report and reduced expectations for a Fed rate hike, with near-term support amid signs the US might continue joint intervention in the forex market in support of the yen.