United States Dollar Index slips as soft US CPI dents Fed rate-hike bets

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The US Dollar Index (DXY) comes under selling pressure on Tuesday after softer-than-expected United States (US) inflation data prompted traders to scale back expectations of an imminent Federal Reserve (Fed) interest rate hike.

The US Dollar Index falls as softer US inflation data cools near-term Fed rate-hike bets.
Rising Oil prices keep inflation risks alive and limit the Greenback’s losses.
Fed Chair Kevin Warsh says there is still plenty of work to do on inflation.

At the time of writing, the index, which tracks the Greenback’s value against a basket of six major currencies, trades around 100.92, down nearly 0.38% on the day after touching an intraday low of 100.60.

Headline CPI fell 0.4% MoM in June after rising 0.5% in May. Annual inflation slowed to 3.5% from 4.2%, below the 3.8% forecast.

Core CPI, which excludes volatile food and energy prices, was flat on a monthly basis, against expectations for a 0.2% increase. The annual core rate slowed to 2.6% from 2.9%, below the 2.8% forecast.

Following the data, the probability of a July hike fell to 12% from 40%, while the odds of a September rate increase eased to 59% from 74%, according to the CME FedWatch Tool.

Despite signs that inflation is cooling, upside risks remain as escalating tensions in the Middle East push Oil prices higher again. This keeps expectations of Fed tightening later this year alive and limits the US Dollar’s downside.

“We see scope for further USD gains in the next couple of months. Sticky US inflation and a resilient labor market will keep Fed pricing hawkish, while US economic outperformance is poised to keep rate differentials supportive of USD,” analysts at Brown Brothers Harriman (BBH) said.

Meanwhile, Fed Chair Kevin Warsh reiterated the central bank’s commitment to bringing inflation back to its 2% target during his congressional testimony on Tuesday, saying “no tolerance for persistently elevated inflation.”

“The June CPI was positive relative to expectations,” Warsh added. “I’m not cherry-picking. There is still plenty of work to do.”

Attention now turns to the US Producer Price Index (PPI) data, due on Wednesday, for more clues on the inflation outlook.

US Dollar Price Today

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

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.38%	-0.23%	-0.16%	-0.62%	-0.83%	-1.04%	-0.66%
EUR	0.38%		0.15%	0.22%	-0.23%	-0.45%	-0.65%	-0.28%
GBP	0.23%	-0.15%		0.09%	-0.38%	-0.58%	-0.79%	-0.43%
JPY	0.16%	-0.22%	-0.09%		-0.46%	-0.68%	-0.89%	-0.53%
CAD	0.62%	0.23%	0.38%	0.46%		-0.22%	-0.41%	-0.05%
AUD	0.83%	0.45%	0.58%	0.68%	0.22%		-0.21%	0.16%
NZD	1.04%	0.65%	0.79%	0.89%	0.41%	0.21%		0.36%
CHF	0.66%	0.28%	0.43%	0.53%	0.05%	-0.16%	-0.36%

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).