Moderate inflation supports easing outlook
The U.S. dollar lost ground against major currencies on Tuesday after new consumer price data reinforced expectations for a Federal Reserve interest rate cut in September. Figures from the Bureau of Labor Statistics showed the Consumer Price Index (CPI) rose 0.2% in July, matching forecasts and slowing from June’s 0.3% increase. Annual inflation remained at 2.7%, slightly below the 2.8% expected.
Analysts said the subdued reading, combined with signs of labor market softness, gives policymakers more flexibility. “Chair Powell should put a September cut on the table when he speaks at Jackson Hole on the 21st,” noted Karl Schamotta, chief market strategist at Corpay.
Currency markets react to shifting yields
The euro reversed early losses to trade up 0.06% at $1.16235, while the dollar held a 0.17% gain against the yen at 148.390. Schamotta pointed to narrowing yield differentials as a key driver, noting the greenback is facing “sustained selling pressure” from other advanced-economy currencies. He added that this trend could persist if upcoming data confirms a slowdown in U.S. growth.
Sterling rose 0.4% to $1.34805 after U.K. labor market data showed further weakening, though wage growth stayed strong. The Bank of England, which narrowly cut rates last week, is expected to proceed cautiously on future policy changes.
Global policy moves shape FX sentiment
In Asia, the Australian dollar slipped 0.3% to $0.64945 following the Reserve Bank of Australia’s quarter-point cut. The RBA cited easing inflation and softer labor conditions but signaled a cautious approach to further reductions. ANZ economist Adam Boyton said a follow-up cut in November remains likely, with rates holding steady thereafter.
Markets largely brushed off President Donald Trump’s extension of a pause on higher tariffs for Chinese imports, a move widely anticipated by traders.
Fed leadership speculation
Speculation over Federal Reserve leadership resurfaced after former St. Louis Fed President James Bullard said he would accept the chair position if offered, pledging to protect the dollar’s value, maintain low inflation, and respect the institution’s independence.
