Dollar Stalls Amid Benign US Inflation Data

The US dollar's rise paused on Thursday as a benign reading of US consumer inflation led traders to reduce their bets on a September Federal Reserve rate hike.

Data released on Wednesday showed that US consumer prices increased by only 0.1% in July, aligning with economist expectations. As a result, money markets decreased the odds of a September rate hike from 54% to 40%, according to CME Group's FedWatch.

CIBC Capital Markets' head of G10 FX strategy Jeremy Stretch noted that the US Federal Reserve may adopt a more holistic approach to inflationary dynamics under Chair Kevin Warsh, considering metrics beyond core PCE. However, for now, the CPI print has given markets reason to continue reducing their expectations of Fed tightening.

The dollar edged lower against the yen, trading at around 159.4 yen, about 2.7% below late July's highs near 164 that sparked joint intervention by the US and Japan. The euro remained steady at $1.1524, while the pound dipped to $1.347 after data showed the UK economy unexpectedly grew in June.