Dollar steady as traders await key US inflation data

The U.S. dollar remained stable on Tuesday as traders awaited the release of the July consumer inflation report, which could influence the Federal Reserve's upcoming policy decision. Following Friday's unexpected payroll cut, traders had reduced expectations for a September rate hike. Inflation's resurgence could reignite hopes of a rate increase, as the central bank continues to grapple with price pressures above its 2% annual target. Conversely, ongoing disinflation could further diminish expectations for rate hikes.

Eric Theoret, a currency strategist at Scotiabank, stated, "So long as this disinflationary trend continues, it's hard to make a case for rates to be going higher." Meanwhile, oil prices, fueled by a deal to reopen the Strait of Hormuz, have reignited concerns over renewed inflationary pressure, although energy prices are still below their recent highs.

Crude oil prices temporarily fell after reaching their highest level in over a week, but a deal between Oman and Iran over shipping through the strait was temporarily offset by ongoing disruptions to Middle Eastern energy flows.

Fed funds futures traders now estimate a 48% chance of a September rate increase, down from 58% a week ago. The dollar index, which gauges the greenback against a basket of currencies, including the yen and euro, increased by 0.04% to 99.81, with the euro remaining unchanged at $1.1542. The Japanese yen strengthened by 0.05% to 159.19 per dollar.

The U.S. and Japan recently coordinated to boost the yen, which had dropped to a 40-year low against the dollar. The yen's value is expected to remain volatile until fundamentals improve and the Bank of Japan resumes raising rates.

The Australian Reserve Bank maintained its cash interest rate at 4.35% as anticipated but stated it may raise rates again. Inflation is fueled by soaring energy costs. Australia's currency gained 0.18% against the greenback, reaching $0.7065.