Dollar Retreats Amidst Soft Inflation Data

The US dollar declined against major currencies during the week ended July 31 due to softer-than-expected inflation data from the US, casting doubts on the Federal Reserve's ability to hike interest rates immediately.

During this period, the Dollar Index dropped by over 1.5% on a weekly basis as it traded between its weekly high of 101.64 and low of 99.69. The Federal Reserve had maintained the target range for the federal funds rate at 3.5 to 3.75%, but three members of the FOMC voted for a hike, adding uncertainty about the Fed's likely action in September.

The core PCE price index increased by only 0.1% in June, below market expectations of a 0.2% rise. This softer-than-expected inflation print helped global markets tone down expectations of a rate hike in September, with the CME FedWatch tool showing an increase in expectations of a pause from 19% to 33% on Friday.