Dollar Treads Water as Fed Hike Bets Pared on Benign US Inflation

The US dollar's advance has stalled after the latest US inflation reading came in lower than expected. The benign inflation figure led traders to reduce their bets on a near-term Federal Reserve interest rate hike, with the odds of a September rate hike falling to 40% from 54% last week.

Michael Wan, a currency strategist at MUFG, believes that the FOMC is likely to maintain a restrictive holding pattern in September rather than pivot towards a hike. The dollar index was flat at 100 on Thursday but remains on course for a 0.4% weekly rise.

The greenback is still up about 1% this week after recent joint US-Japan intervention that saw it plummet to a three-month low. However, the exchange rate has rebounded without any further intervention in the past week, eroding confidence in Japan's commitment to defending the yen.