Dollar on back foot

The dollar was steady on Wednesday after falling the day before. Softer-than-expected inflation data curbed bets for a near-term rate hike from the Federal Reserve, despite concerns that elevated oil prices could fuel inflation risks.

Against the yen, the dollar fetched 162.24. The euro and the British pound both gained about 0.1 percent, trading at $1.1428 and $1.3406, respectively.

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The US dollar index, which measures the currency against a basket of six peers, was flat at 100.9. It fell 0.4% in the previous session for its biggest pullback in nearly two weeks.

This pullback dragged it down from the highest levels since July 2. US consumer inflation slowed more than expected to 3.5 percent on a year-on-year basis in June, data showed on Tuesday.

The headline consumer price index fell 0.4 percent over the month, marking the first decline since April 2020, as energy prices retreated. US Treasury yields fell after the surprisingly soft data.

The numbers dampened market expectations for a near-term rate hike from the Fed. Yields on two-year US Treasuries fell off nine basis points from a 16-month high.

“The market was building a conviction that the Fed was going to hike in September and it has certainly injected a bit of doubt into that now,” said Chris Turner, head of global markets at ING.

Turner added the Fed would probably need to see further soft inflation prints before completely ruling out a rate hike later this year.

“Short-term, these Fed tightening expectations are going to hang around a bit, so I think the dollar can stay stable, depending on what happens with energy prices,” Turner said.

New Fed Chair Kevin Warsh said during his testimony before the House Financial Services Committee on Tuesday that the central bank has “no tolerance” for persistently elevated inflation.

Warsh also vowed to “do my job” if challenged by US President Donald Trump.

Traders were now pricing in about a 65 percent chance of a rate hike in September, with any tightening later this month all but ruled out.