Dollar Weakens as Fed Seen on Hold Amid Contained Inflation

The US dollar's bearish momentum continued after the release of July's Consumer Price Index (CPI) data, according to TD Securities strategists. The inflation report showed a modest increase in headline CPI, rising 0.1% month-over-month (m/m), and core CPI increasing 0.2% m/m.

The contained tariff pass-through and signs of normalization in services inflation are reducing the need for tighter Federal Reserve policy, TD Securities noted. Despite this, they maintain their view that the Fed will keep its policy stance unchanged this year.

Market expectations for a rate hike at the September meeting remain low, with pricing sitting just under 50%. However, the strategists caution that further data is needed before making any conclusions about the Fed's future actions.