United States Dollar Index stays below 101 as traders trim hawkish Fed bets

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The US Dollar (USD) underperforms its major currency peers as traders have trimmed Federal Reserve (Fed) interest rate hike expectations for the current year, following the release of the softer-than-expected United States (US) Consumer Price Index (CPI) data for June.

The US Dollar Index weakens against its major currency peers as traders pare hawkish Fed bets.
The US headline and core CPI remain lower at 3.5% and 2.6% YoY, respectively, in June.
Fed Chair Warsh says that the central bank has no tolerance for persistently high inflation.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.13%	-0.03%	-0.05%	-0.08%	-0.14%	0.06%	0.00%
EUR	0.13%		0.04%	0.07%	0.06%	-0.06%	0.13%	0.13%
GBP	0.03%	-0.04%		0.02%	-0.01%	-0.11%	0.09%	0.08%
JPY	0.05%	-0.07%	-0.02%		-0.02%	-0.10%	0.10%	0.06%
CAD	0.08%	-0.06%	0.01%	0.02%		-0.07%	0.08%	0.09%
AUD	0.14%	0.06%	0.11%	0.10%	0.07%		0.17%	0.14%
NZD	-0.06%	-0.13%	-0.09%	-0.10%	-0.08%	-0.17%		-0.01%
CHF	-0.01%	-0.13%	-0.08%	-0.06%	-0.09%	-0.14%	0.00%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.12% lower to near 100.80.

On Tuesday, the US Bureau of Labor Statistics (BLS) reported that headline inflation cooled down to 3.5% Year-on-Year (YoY) from 4.2% in May. The inflation data was expected to arrive lower at 3.8%. The core CPI – which excludes volatile food and energy items – grew at a moderate pace of 2.6% YoY vs. 2.8% estimates and the previous reading of 2.9%.

According to the CME FedWatch tool, the odds of the Fed raising interest rates in the policy meeting this month have eased to 16.6% from 41.7% recorded on Monday.

Meanwhile, Fed Chairman Kevin Warsh said in his prepared remarks in his testimony before Congress on Tuesday that the central bank has “no tolerance for persistently elevated inflation”, adding if we get the policy right, “the inflation surge of the last five years will be a thing of the past".

Going forward, investors will focus on the US Producer Price Index (PPI) data for June, which will be published at 12:30 GMT. The data will provide cues regarding the current inflation status at the wholesale level.

On the geopolitical front, escalating aggression between the US and Iran will likely improve the safe-haven appeal of the US Dollar.

Economic Indicator

Consumer Price Index ex Food & Energy (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as the Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The CPI Ex Food & Energy excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures. Generally speaking, a high reading is bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.

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