US Dollar Flat Ahead of July CPI Data as Fed Rate Decision Hangs in Balance

TLDR

• The US dollar traded flat as markets waited for July CPI data due Wednesday
• Fed funds futures show a near 50/50 split on whether the Fed will hike or hold rates in September
• Bitcoin dropped 0.2% to $63,554 and ether slipped 0.1% to $1,879
• Oil prices climbed toward $90 a barrel as Strait of Hormuz tensions grew
• The Japanese yen hovered near two-week lows despite recent US-Japan joint intervention

The US dollar was little changed on Wednesday as traders held back from making big moves ahead of the July consumer price index report.

The dollar index edged up just 0.1% to 99.88. The euro held at $1.1542, the British pound stayed at $1.3508, and the Australian dollar was flat at $0.7064.

The yen sat at around 159.41 per dollar, near its weakest levels in two weeks. That comes despite a recent joint effort by US and Japanese authorities to prop up the Japanese currency.

Economists expect headline CPI to rise 0.1% in July after falling 0.4% in June. Annual inflation is forecast to slow slightly to 3.4% from 3.5%.

MUFG analysts said the CPI numbers were “arguably more important” than last week’s weaker jobs data, given the Federal Reserve’s current focus on inflation over the labour market.

Fed funds futures show a 52% chance the Fed leaves rates unchanged at its September meeting, versus a 48% probability of a quarter-point hike, according to the CME FedWatch tool.

Chicago Fed President Austan Goolsbee said Tuesday the central bank is more worried about high inflation than labour market weakness. It is unclear whether his view aligns with those who backed a rate hike last month.

ING analysts said there is a path to easing inflation through the rest of 2026, assuming oil prices stay contained and the Strait of Hormuz reopens.

Oil Climbs as Hormuz Tensions Rise

Oil prices pushed higher as shipping disruptions in the Middle East continued. Brent crude rose to near $90 a barrel.

Houthi forces attacked a cargo ship in the Bab el-Mandeb strait. A US military strike also hit a container ship off Pakistan that was trying to break through a blockade of the Strait of Hormuz.

Iranian officials said the strait would stay closed unless Washington accepted conditions for ending the conflict. Shipping traffic through the waterway has dropped sharply.

Higher oil prices are a particular concern for oil-importing Asian economies, as they raise import costs and could add to inflation.

The Reserve Bank of Australia held its policy rate at 4.35% in a unanimous decision Tuesday, keeping the Australian dollar steady.

In crypto markets, bitcoin fell 0.2% to $63,554 and ether dropped 0.1% to $1,879. Both moves were small, reflecting broader market caution ahead of the CPI release.

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