Dollar Retreats as US Inflation Data Falls Short

The US dollar retreated against major currencies on Wednesday after data showed a smaller-than-expected increase in US inflation. The Personal Consumption Expenditures Price Index, the Federal Reserve's preferred inflation gauge, rose 0.3% last month, lower than the forecasted 0.4%.

Economists had expected an interest rate hike from the Fed due to rising oil prices driving inflation, but this softer-than-expected data reduced market bets on a hike. The dollar has been strengthening alongside US Treasury yields in anticipation of more Fed rate hikes.

However, the dollar pared recent gains against the euro and other currencies after the data release, while US Treasury yields fell across the board. The 2-year note yield dropped 4.15 basis points to 4.848%, indicating lower expectations of an October rate hike.