The dollar index erased early losses to close 0.2% higher on Wednesday after an in-line July CPI report cooled inflation and raised the odds the Fed holds rates steady in September, while ongoing uncertainty over the Strait of Hormuz kept a floor under the greenback. The euro shed 0.2% to $1.1524 as the dollar firmed, and Brent crude briefly touched $90 a barrel amid the Hormuz standoff.
The U.S. dollar index rebounded from a session low to close 0.2% higher at 99.98 on Wednesday, after an in-line July inflation report briefly dragged it down before uncertainty over the Strait of Hormuz shifted sentiment back toward the greenback. The index had hit a session trough of 99.61 shortly after the CPI data was released before recovering.
Cooling CPI narrows the case for further tightening
Headline CPI ticked up 0.1% M/M in July and cooled to 3.4% Y/Y from 3.5%, the U.S. Bureau of Labor Statistics reported. Core CPI, which strips out food and energy, rose 0.2% M/M and decelerated to 2.5% Y/Y from 2.6%, matching expectations across the board.
The report followed a weaker-than-expected July jobs reading last Friday, which had already prompted traders to recalibrate September rate-hike odds. Fed funds futures tracked by the CME FedWatch tool showed the odds of the FOMC holding rates steady in September rise to 62% from 54% after the CPI release.
According to Chris Zaccarelli, chief investment officer at Northlight Asset Management: "The big surprise with a report that had no surprises" was that cooling inflation paired with the soft jobs data gives the Fed more room to wait before hiking. Wall Street took the data positively, with the S&P 500 index up 0.4% on the session.
Euro and sterling slip as the dollar firms
The euro shed 0.2% to $1.1524 against the dollar. Sterling separately slipped 0.1% to $1.3491.
Hormuz standoff keeps a risk premium alive
Away from the economic calendar, Brent crude briefly touched $90 a barrel as the U.S. and Iran continued trading claims over control of the Strait of Hormuz, with little progress toward a deal to reopen it. Trump said on his Truth Social platform that the U.S. holds total control over the strait.
Iran's security council chief Mohsen Rezaei said, according to state media, that the strait will not reopen until the U.S. changes its behavior and accepts Iran's conditions. Houthi rebels reported an attack on commercial shipping in the Bab el-Mandeb Strait that killed four cargo-ship crew members and two Yemeni rescuers, while the U.S. disabled a Panama-flagged vessel near the Gulf of Oman.
Yen keeps giving up its intervention gains
Elsewhere, the USD/JPY pair rose 0.1% to 159.46 as the yen kept eating into the gains made after last month's joint intervention by Washington and Tokyo. A Reuters Tankan survey showed Japanese business confidence improved in August on strong semiconductor demand and domestic consumption.
Source: Investing.com
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