Dollar mixed after flat PPI, rate hike bets cool

The U.S. dollar experienced mixed movements on Thursday following the revelation that producer prices remained unchanged in July. This led traders to decrease their expectations for a September Federal Reserve interest rate hike, as the flat Producer Price Index for final demand matched a revised 0.1% drop in June. Economists surveyed by Reuters had predicted a 0.2% increase in the PPI.

The anticipation of a modest Fed funds futures probability for a September hike, at 35% from Wednesday's 40% and 55% a week earlier, contributed to the dollar's mixed sentiment. The dollar index, which gauges the greenback's value against a basket of currencies including the yen and the euro, saw a slight increase of 0.02% to 99.96, following a drop to 99.80 after the PPI report.

The euro rose 0.03% to $1.1528. Traders have been deliberating whether the Fed would need to raise interest rates due to inflation persisting above the central bank's 2% objective and oil prices surging following Iran-related disruptions in the Strait of Hormuz. The Japanese yen weakened 0.04% to 159.48 per dollar, having relinquished some of the gains from last month's unprecedented joint intervention by the U.S. and Japan.

This intervention has heightened market speculation about the Bank of Japan needing to raise rates more aggressively and swiftly, intensifying pressure on the currency as it enters the upcoming policy meeting.