The US dollar weakened on Wednesday, extending the prior session’s decline as the latest inflation data left expectations leaning toward a Federal Reserve rate cut next month.
Headline CPI held steady at 2.7% in July, undershooting forecasts for a tariff-driven increase to 2.8%, while core CPI climbed to 3.1%, the highest in six months.
Markets now price in a 96% probability of a 25-basis-point cut in September, with two additional reductions anticipated before the end of the year, which could continue to weigh on the currency.
US Treasury yields could remain under pressure as expectations continue to point to a dovish repricing, with the 2-year retracing near 3.72%. Upcoming data releases, including jobless claims and PPI, could provide temporary relief if there are any upside surprises. Conversely, continued soft labour market conditions could further weigh on yields and the currency.
