On Wednesday, the dollar declined against its major peers, pushing the EURO to an 8-month high, as the U.S. consumer price index showed inflation was easing, reinforcing expectations that the Federal Reserve would cut interest rates soon.
In July, U.S. CPI rose slightly and the increase in annual inflation slowed to lower than 3% for the first time since 2021. This added to expectations for a rate cut next in September, although likely less aggressive than markets had expected.
The report adds to the slight increase in July producer prices, indicating that inflation is continuing its downward trend. This may give the Fed space to focus more on the labor market amid increasing worries of a sharp slowdown.
The EURO was 0.4% higher versus the US dollar at $1.1031, higher than the peak hit during last week’s market turmoil, and was trading at the strongest level since January 2.
The U.S. dollar index, which measures its strength against 6 other major currencies, dropped 0.2% to 102.4.
According to CME Group’s FedWatch Tool, traders had generally been expecting a rate cut in Sept. before the producer price data and increased bets for a super-sized 0.5% cut after the release to 56% from 53% the prior day.
