Dollar Falls as US Inflation Data Strengthens September Rate Cut Outlook
The U.S. dollar weakened across the board on Tuesday after data showed consumer prices rose moderately in July, reinforcing expectations for a Federal Reserve interest rate cut next month.
The consumer price index (CPI) increased 0.2% in July, following a 0.3% rise in June, according to the Labor Department. Over the past 12 months, CPI rose 2.7%, unchanged from June. Economists had expected a 0.2% monthly gain and a 2.8% annual increase.
Moderate Inflation Gives Fed Room to Ease
“Underlying inflation remains subdued, giving policymakers room to maneuver as they respond to signs of labor market weakness,” said Karl Schamotta, chief market strategist at Corpay.
He added that Fed Chair Jerome Powell should “put a September cut on the table” when speaking at the Jackson Hole Economic Symposium on August 21.
Currency markets were largely steady before the CPI release, with traders expecting a moderate reading to confirm bets for a September rate cut — expectations that grew after last week’s weaker payrolls report.
“If the Fed moves ahead with back-to-back cuts, the policy rate gap with other central banks could narrow quickly, pressuring the dollar against higher-yielding currencies,” said Fawad Razaqzada, analyst at Forex.com.
Major Currency Moves
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EUR/USD rose 0.4% to $1.1666.
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USD/JPY fell 0.3% to 147.74 yen.
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GBP/USD gained 0.5% to $1.3495 after U.K. data showed the job market weakened further but wage growth remained strong, reinforcing the Bank of England’s cautious stance on rate cuts.
The Bank of England cut rates last week in a narrow 5-4 decision. Analysts said the latest jobs report is unlikely to accelerate the pace of further cuts.
Aussie Recovers After RBA Cut
The Australian dollar initially dipped after the Reserve Bank of Australia lowered its cash rate by 0.25%, as widely expected. The RBA cited slowing inflation and a softer labor market but was cautious about further easing.
Broad U.S. dollar weakness helped the Aussie recover to trade 0.3% higher at $0.653.
Global Growth and Fed Leadership Speculation
Schamotta noted that the impact of tariffs on global growth remains uncertain, making it difficult to predict the dollar’s performance for the rest of the year. “Signs of a broader slowdown could see the dollar regain strength,” he said.
Speculation over Federal Reserve leadership resurfaced after former St. Louis Fed President James Bullard said he would accept the role of Fed Chair if offered. Bullard emphasized protecting the value of the dollar, keeping inflation low, and maintaining Fed independence.
Trade News and Bitcoin Update
Currency markets largely ignored President Donald Trump’s decision to extend the U.S.-China tariff truce for another 90 days, a widely expected move.
Bitcoin traded flat at $119,295 after reaching $122,308 on Monday, approaching its record high of $123,153 set in mid-July.
