Dollar Stalls as Inflation Data Cools Rate Hike Bets

The US dollar has stalled after a benign reading of US consumer inflation led traders to reduce their bets on a September rate hike from the Federal Reserve.

Data released on Wednesday showed that US consumer prices increased by only 0.1% in July, as expected, which prompted money markets to lower the odds of a September rate hike to 40%, down from 54% just a week ago.

CIBC Capital Markets' head of G10 FX strategy Jeremy Stretch noted that the CPI print has given traders reason to continue paring back Fed tightening expectations. He also mentioned that Fed Chair Kevin Warsh prefers a more holistic approach to inflationary dynamics, but for now, markets are focusing on core PCE.

The dollar edged lower against the yen and was steady against the euro and pound, while the Norwegian crown weakened after Norges Bank left interest rates on hold. The Australian dollar also lost ground, in contrast to the Norwegian crown which has been one of the best-performing currencies this year.