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Dollar ends higher after CPI meets expectations and rate-hike odds fade

July CPI matched forecasts, with core inflation holding at 2.5% year over year, and the market-implied chance of a September rate hike slid to about 39% from 44% before the data.

Reported · Written up by our desk · Major Pairs

Forexlive’s Americas FX news wrap said the July U.S. CPI report was the main catalyst for FX and broader risk assets, coming in largely as expected while showing some further moderation in annual inflation.

Headline CPI rose 0.1% month over month and 3.4% year over year, easing from 3.5% in June, while core CPI increased 0.2% and rose 2.5% year over year, falling from 2.6% and reaching its lowest level since February.

The report also included mixed details, with shelter costs firm, owners’ equivalent rent and primary rents up 0.3%, while energy prices fell 1.5% and gasoline dropped 2.9%. Forexlive noted the CPI gave the Fed more room to stay on hold in September, with the market-implied probability of a September rate hike slipping to around 39% from 44% before the release.

Despite that shift in rate expectations, the U.S. dollar moved higher against all major currencies by the end of the day, with its biggest gain versus the New Zealand dollar and the smallest gain versus the Australian dollar, and gains also reported versus the Swiss franc, Canadian dollar, and Japanese yen. Forexlive added that Treasury yields initially fell after the CPI release, but declines faded later, leaving front and intermediate yields slightly lower while longer-term yields moved higher.

Latest closeGasoline (RBOB) $2.882 ▼8.1%

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