Dollar Falls as Markets Anticipate September Rate Cut
The U.S. dollar weakened on Wednesday following inflation data that matched expectations, reinforcing investor bets that the Federal Reserve will lower interest rates next month. The decline came amid ongoing political tensions over President Donald Trump’s efforts to expand his influence over key U.S. institutions, which further weighed on the currency.
July’s consumer price index posted a modest increase, indicating that the broad tariffs imposed by the administration have so far had only a limited effect on goods prices. These results prompted markets to price in a 98% probability of a rate cut at the Fed’s September meeting, which put additional pressure on the dollar.
In currency markets, the euro edged up 0.1% to $1.1684 after a 0.5% gain in the previous session. Against the yen, the dollar rose 0.07% to 147.95. The dollar index fell to 98.02, extending Tuesday’s 0.5% drop.
Investors remain focused on the Fed’s next move, with mixed expectations over whether the latest inflation data justifies a September cut. Some analysts believe that upcoming economic indicators, such as employment data, could sway the decision.
U.S. Treasury yields also declined on growing rate-cut expectations. The two-year yield slipped to 3.7348% after wide intraday swings on Tuesday, while the benchmark 10-year yield edged down by one basis point to 4.2829%.
Political developments further eroded confidence in the dollar, including reports that President Trump is considering legal action against Fed Chair Jerome Powell over renovation work at the central bank’s Washington headquarters. Trump has also continued to criticize senior Wall Street executives, questioning their leadership and policy forecasts.
The British pound inched higher by 0.03% to $1.3505, despite labor market data showing renewed weakness alongside strong wage growth, which supports the Bank of England’s cautious stance on rate cuts. The Australian dollar gained 0.03% to $0.6531, while the New Zealand dollar rose 0.05% to $0.5957.
On Tuesday, the Reserve Bank of Australia lowered interest rates as expected and signaled the possibility of further monetary easing to support inflation and employment amid a slowing economy.
In cryptocurrency markets, Bitcoin’s rally stalled before reaching a new record high, slipping 0.7% to $119,337.25. Ethereum reached its highest level in nearly four years at $4,679.47, buoyed by stronger real-world adoption and surging trading volumes, which have now surpassed Bitcoin on certain platforms.
