Dollar Weakness Spikes as Cooling US Inflation Slows Rate Hike Bets

The US Dollar Index (DXY) took a hit on Wednesday after inflation data came in cooler than expected, prompting traders to scale back bets on further Federal Reserve interest rate hikes.

The latest Consumer Price Index (CPI) report showed that headline inflation rose 6.3% year-over-year, below the forecasted 6.5%. Core inflation also came in softer than expected, leading investors to reassess the likelihood of another rate increase at the Fed's next meeting.

Futures markets are now pricing in a 14% probability of a hold, according to CME FedWatch. A softer inflation print reduces the urgency for further tightening, which typically weighs on the dollar as lower rates diminish its yield appeal.