SINGAPORE: The dollar weakened on Wednesday after a tame reading on U.S. inflation bolstered expectations of a Federal Reserve rate cut next month, with President Donald Trump’s attempts to extend his grip over U.S. institutions also undermining the currency.
U.S. consumer prices increased marginally in July, data showed on Tuesday, in line with forecasts and as the pass-through from Trump’s sweeping tariffs to goods prices has so far been limited.
Investors eyeing imminent Fed cuts cheered the data and moved to price in a 98% chance the central bank would ease rates next month, which in turn dragged on the dollar.
Against the yen , the dollar was last 0.05% lower at 147.76, while the euro was steady at $1.1676, having risen 0.5% in the previous session.
The dollar index last stood at 98.08, after falling roughly 0.5% on Tuesday.
“The July CPI report showed less evidence of tariff pass-through to consumer prices…(but) I think a September rate cut is less than certain, probably not as certain as current market pricing,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“As the last payroll shows, one report can be sufficient to move the policy debate to one side or another. So I think we still have to wait until the remaining data to print before making a strong case about a rate cut or an on hold decision.”
U.S. Treasury yields similarly fell on the heightened rate cut expectations, with the two-year yield last at 3.7371%, having swung in a range of nearly 10 basis points on Tuesday.
The benchmark 10-year yield was little changed at 4.2965%.
Also eroding investor confidence in the dollar were fresh attempts by Trump to undermine Fed independence, after White House spokeswoman Karoline Leavitt said on Tuesday that the U.S. president was considering a lawsuit against Fed Chair Jerome Powell in relation to his management of renovations at the central bank’s Washington headquarters.
Trump has been at loggerheads with Powell and has repeatedly lambasted the Fed Chair for not easing rates sooner.
The president also hit out at Goldman Sachs CEO David Solomon, saying the bank had been wrong to predict U.S. tariffs would hurt the economy and questioned whether Solomon should lead the Wall Street institution.
Elsewhere, sterling gained 0.03% to $1.3504.
Britain’s jobs market weakened again though wage growth stayed strong, according to data on Tuesday, underscoring why the Bank of England is so cautious about cutting interest rates.
“(The) UK jobs figures pointed to the labour market remaining in fragile shape,” said Michael Brown, senior research strategist at Pepperstone.
“My base case still has the next 25bp cut pencilled in for November, though there is a long way to go, and a lot of data to come, before then.”
In other currencies, the Australian dollar dipped 0.05% to $0.6526, while the New Zealand dollar fell 0.03% to $0.5953.
The Reserve Bank of Australia on Tuesday cut interest rates as expected, and signalled further policy easing might be needed to meet its inflation and employment goals as the economy lost some momentum.
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