Dollar holds losses on dovish Fed bets

The U.S. dollar index hovered around 98 on Wednesday, stabilizing after sharp losses in the previous session as investors digested the latest inflation data and its implications for Federal Reserve policy.

July’s headline consumer price index remained unchanged at 2.7%, defying forecasts for a tariff-driven uptick to 2.8%, while core inflation edged up to 3.1% from 2.9%, the highest in six months.

The softer-than-expected headline reading eased concerns that new import levies would quickly filter through to consumer prices, reinforcing market expectations that the Fed will deliver a 25-basis-point rate cut in September. Rate futures now assign a 94% probability to that outcome, with an additional reduction before year-end already priced in.

The greenback also came under political pressure after White House spokeswoman Karoline Leavitt said President Donald Trump is considering legal action against Fed Chair Jerome Powell over his handling of renovations at the central bank’s headquarters.

The unusual public dispute has raised fresh questions over the Fed’s independence, with analysts warning that perceptions of political interference could undermine investor confidence in U.S. monetary policy.

In currency markets, the dollar extended its losses against the euro and British pound as interest rate expectations tilted in favor of the European Central Bank and Bank of England holding policy steady for now. However, the greenback managed to claw back some ground against the Japanese yen and commodity-linked currencies such as the Australian and New Zealand dollars, helped by profit-taking and stronger U.S. Treasury yields at the long end of the curve.

Looking ahead, traders will be watching upcoming U.S. economic releases — including PPI, retail sales, and jobless claims — for further clues on the Fed’s path. At the same time, geopolitical developments such as the extension of the U.S.–China trade truce and the planned U.S.–Russia meeting on Ukraine are expected to influence broader risk sentiment, potentially shaping dollar flows in the weeks ahead.