The U.S. dollar retreated on Wednesday, continuing its downward trend after modest inflation data fueled speculation that the Federal Reserve may lower interest rates next month.
By 04:25 ET (08:25 GMT), the Dollar Index, which measures the currency against six major peers, fell 0.4% to 97.540, following a 0.5% drop in the previous session.
September Fed Cut in Focus
Tuesday’s data showed U.S. consumer prices edged up only slightly in July, reflecting limited inflationary pressure from tariffs imposed during the Trump administration. This has increased market expectations for a potential rate reduction in September.
Investors now see a 98% likelihood of a Fed rate cut next month, weighing on the dollar.
“At this stage, the dollar has few bullish arguments to hold onto. Upcoming surveys might paint a better activity picture, but it’s all about the jobs market now: a substantial recovery in the dollar from these levels appears realistic only if jobs figures turn significantly stronger,” analysts at ING wrote in a note.
The economic calendar for Wednesday is light. A producer prices index for final demand is expected Thursday, while Friday will bring U.S. retail sales figures and a consumer sentiment survey.
“The proximity to the Trump-Russia summit on Friday and recent reassessment of the chances of an imminent ceasefire mean the dollar may not fall much further for now,” ING added.
Euro Strengthens
In Europe, EUR/USD climbed 0.3% to 1.1712, adding to gains of about 0.5% from the previous session.
Spain’s EU-harmonized inflation rate for the past year rose to 2.7% in July from 2.3% in June, while Germany’s reading remained steady at 1.8%.
“EUR/USD’s bullish case is stronger after yesterday’s US inflation report. However, a break above might be delayed until after the Trump-Putin meeting on Friday,” ING said.
GBP/USD increased 0.4% to 1.3560, supported by data showing U.K. wages staying elevated, underscoring the Bank of England’s cautious approach to rate cuts.
Yen Gains After PPI Release
USD/CNY traded largely flat at 7.1763 after earlier declines this week, following the U.S. and China’s announcement of a 90-day extension of their temporary trade agreement. U.S. officials said discussions with Beijing will resume in the coming months.
USD/JPY fell 0.2% to 147.46, with the yen strengthening after producer prices slightly exceeded expectations, potentially prompting further action from the Bank of Japan.
AUD/USD rose 0.4% to 0.6551, with the Australian dollar climbing despite the Reserve Bank of Australia cutting its benchmark rate on Tuesday, marking its third reduction this year.
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