Dollar gains, yen slips as US CPI meets expectations

The U.S. dollar strengthened on Wednesday after the country's consumer price inflation matched economists' expectations for July, despite traders adjusting their expectations for when the Federal Reserve might raise interest rates. In the 12 months leading up to July, the Consumer Price Index (CPI) increased by 3.4%, after a 3.5% rise in June.

Core CPI also climbed 2.5% over the past year, up from 2.6% in June. Following Friday's jobs report, which revealed an unexpected job loss in July, traders have reduced their expectations of a September rate increase from 44% to 40%, according to Fed funds futures. Marc Chandler, the chief market strategist at Bannockburn Global Forex, observed that the dollar was slightly stronger than anticipated following the softer-than-expected jobs data.

The dollar's rise was driven by higher oil prices as traders focus on discussions to open the Strait of Hormuz. Oil prices remained relatively stable in volatile trading after forecasters cut their projections for 2026 global oil demand. Meanwhile, the Japanese yen weakened against the dollar, slipping 0.1% to 159.45 per dollar.

This decline followed the joint intervention by U.S. and Japanese authorities in late July to strengthen the yen, which has since faded. Currency analysts suggest that should there be no significant changes in economic fundamentals, speculators may be encouraged to rebuild short yen positions, particularly in a stable financial market environment that supports carry trades.