The US dollar weakened against the euro on Tuesday after the US Consumer Price Index (CPI) showed a modest increase in July, maintaining expectations that the Federal Reserve (Fed) will cut interest rates next month. Data from the Bureau of Labor Statistics (BLS) showed that the CPI rose 0.2% month-on-month, compared with a 0.3% increase in June. On an annual basis, inflation remained at 2.7%, slightly below analysts' expectations of 2.8%.
Market analyst Karl Schamotta said that the still-subdued core inflation gives policymakers room to respond to early signs of a slowdown in the labor market. He expects Fed Chairman Jerome Powell to open discussions on a rate cut at the Jackson Hole Economic Symposium on August 21. This expectation is strengthened after weak jobs data last week eased pressure on the dollar. The euro strengthened 0.06% to $1.1658, while the US dollar pared some of its gains against the yen to 148.39 yen.
Schamotta added that the bond yield gap is narrowing against the dollar at the policy-sensitive end of the curve, putting the U.S. currency under continued selling pressure. He expects this trend to continue through the summer if new data confirms a slowdown in the U.S. economy. However, uncertainty about the impact of tariffs on global growth continues to make it difficult to forecast the dollar’s performance through the end of the year.
Amid speculation over Fed leadership, former St. Louis Fed President James Bullard said he would accept the Fed chairmanship if offered, provided the dollar’s value is preserved, interest rates remain low over the long term, inflation is stable, and the Fed’s independence is respected. Meanwhile, the British pound rose 0.4% to $1.34805 after data showed the U.K. jobs market remained weak, although wage growth remained strong, a factor that made the Bank of England (BoE) cautious about cutting rates after last week’s small cut.
The Australian dollar fell 0.3% to $0.64945 after the Reserve Bank of Australia cut rates by a quarter point, in line with expectations, due to slowing inflation and a loose labor market. The bank said a follow-up rate cut in November was likely, with the cash rate remaining at 3.35% for an extended period. Meanwhile, currency markets were largely unmoved by President Trump's move to extend a 90-day moratorium on high tariffs on Chinese imports. Bitcoin was flat at around $118,985 after hitting $122,308 on Monday, nearing a record high set in mid-July.
