Dollar and Asian Currencies Hold Steady as CPI Data Cools Fed Hike Bets

The U.S. dollar and most Asian currencies held steady in Thursday trading as investors assessed a U.S. inflation report that aligned with forecasts, tempering expectations for an immediate interest rate hike by the Federal Reserve.

In-Line Inflation Eases Rate Hike Odds

Data released Wednesday showed U.S. consumer prices rose 0.1% in July, matching economists' expectations. The report indicated that annual inflation eased to 3.4% from 3.5% in June, while the core Consumer Price Index (CPI), which excludes volatile food and energy costs, rose 0.2% month-on-month.

Following the report, the market-implied probability of a Fed rate hike at its September meeting fell to approximately 40% from 54%, according to Investing.com. MUFG analysts noted in a report that the inflation print "should allow the FOMC to remain on hold for now but is probably not enough to shift positions at this time."

Market Reaction and Currency Movements

Despite the reduced rate hike odds, the U.S. Dollar Index remained firm, trading flat near 99.99. Traders are now looking ahead to upcoming U.S. producer price and retail sales data for further clues on the central bank's policy direction.

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Across Asia, currency movements were mixed but generally subdued:

• The Japanese yen remained under pressure, with the USD/JPY pair trading near a two-week high of 159.43.
• The South Korean won (USD/KRW) and Indian rupee (USD/INR) both edged 0.1% higher.
• The Singapore dollar (USD/SGD) and the onshore Chinese yuan (USD/CNY) were little changed.
• The Australian dollar (AUD/USD) fell 0.2%.

Geopolitical Risks and Oil Prices

Broader market sentiment was also influenced by geopolitical factors, including stalled peace efforts between Iran and the United States. The resulting tensions have helped keep oil prices elevated, with Brent crude trading around $89 a barrel.

Sustained high energy prices pose a risk of imported inflation for many Asian nations, which could complicate the monetary policy decisions of their respective central banks.