Dollar Holds Ground as Soft US Inflation Cools Fed Hike Bets
The dollar steadied after soft US inflation data cut September Fed hike odds to 40%, with the yen near intervention zone and the Aussie easing from highs.
The US dollar traded in a narrow range on Thursday, pausing its recent advance after a benign inflation report prompted traders to scale back expectations for a near-term Federal Reserve interest rate increase.
Data released overnight showed US consumer prices rose 0.1% in July, matching economist forecasts. The muted reading led money markets to price in just a 40% probability of a September rate hike, down sharply from 54% a week earlier, according to CME Group's FedWatch tool.
The dollar index, which tracks the greenback against a basket of six major currencies, was flat at 100, though it remained on track for a 0.4% weekly gain.
Analysts noted the Fed now faces a delicate balancing act between persistent inflation pressures and signs of a cooling labour market, particularly after last week's weaker-than-expected July payrolls report. One currency strategist suggested the central bank is more likely to hold rates steady in September rather than pivot toward another hike.
Against the yen, the dollar was little changed at 159.44, hovering near the 160 level that many market participants view as a critical threshold. The pair has rebounded about 1% this week, approaching the zone that triggered rare joint US-Japan intervention in late July, which had driven the exchange rate from near a four-decade peak around 164 down to 155.20 within three days.
Market observers said investor confidence in Japan's commitment to defending the yen has eroded as the currency weakened without fresh intervention over the past week. A decisive break above 160 could be interpreted as a sign of limited policy resolve, while successful intervention pushing the pair below 155 would signal strong commitment.
Elsewhere, the euro held steady at $1.1523, while sterling edged slightly lower ahead of UK GDP data due later in the day. The Australian dollar slipped 0.2% to $0.7049, retreating from a 10-week high, even as a Reserve Bank of Australia official warned that inflation risks remain tilted to the upside and could necessitate further rate increases. The New Zealand dollar also declined 0.4%, continuing its gradual pullback from early-June highs. Bitcoin was flat at around $63,532.