Dollar slips as US inflation data backs September rate cut
The consumer price index rose 0.2% last month after gaining 0.3% in June, the Labor Department's Bureau of Labor Statistics said on Tuesday.
In the 12 months through July, the CPI advanced 2.7% after rising 2.7% in June. Economists polled by Reuters had forecast the CPI rising 0.2% and increasing 2.8% year-on-year.
"Underlying inflation remains subdued, giving policymakers room for maneuver as they respond to signs of incipient weakness in labor markets," Karl Schamotta, chief market strategist at Corpay, said.
"Chair Powell should put a September cut on the table when he speaks at Jackson Hole on the 21st," Schamotta said, referring to the Fed's Jackson Hole Economic Symposium later this month.
Currency markets had been in a holding pattern earlier as expectation grew that a moderate reading on U.S. price pressures could cement bets for a Fed rate reduction next month, which increased after last week's soft payrolls data.
"If the Fed moves ahead with back-to-back cuts, the policy rate differential with peers could narrow quickly, weighing on USD against higher-yielding currencies," Fawad Razaqzada, analyst at Forex.com, said in a note.
The euro erased earlier losses against the buck to trade up 0.4% at $1.16663. The greenback fell 0.3% against the Japanese yen to trade at 147.74 yen .
With the jury still out on the impact of tariffs on global growth, predicting how the dollar will react through the end of the year remained challenging, Schamotta said.
"The early-autumn outlook remains incredibly difficult to read, and evidence of a broader global slowdown could easily see the dollar regain its poise," he said.
On Tuesday, speculation about a change of leadership at the Fed was back as Former St. Louis Federal Reserve Bank President James Bullard said he would accept the role of Fed Chair if it was offered to him.
Bullard told CNBC that he would accept the job "if we can protect the value of the dollar ... that'll give us lower interest rates over time; if we aim for low and stable inflation, (and) respect the independence of the institution under the Federal Reserve Act".
Meanwhile, Sterling was up 0.5% on the dollar at $1.3495 after data that showed Britain's jobs market weakened further, albeit more slowly, while wage growth stayed strong - the latter underscoring why the Bank of England is so cautious about cutting interest rates.
The numbers ought not to cause the Bank of England to accelerate the speed of its rate cuts. The BoE cut rates only last week in a tight 5-4 vote.
The Australian dollar initially dipped after the Reserve Bank of Australia cut its interest rate by a quarter point, a move that was widely anticipated. The central bank cited a slowdown in inflation and a looser labor market, though it was cautious on prospects for further easing.
The greenback's broad weakness, however, helped the Aussie recover ground to trade up 0.3% to $0.653 against the U.S. dollar.
Currency markets largely ignored Trump's decision to in sharply higher tariffs on Chinese imports for another 90 days, as widely expected.
Cryptocurrency bitcoin was about flat around $119,295, after climbing as high as $122,308.25 on Monday, taking it close to the all-time peak of $123,153.22 from mid-July.
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