TLDR
- U.S. CPI rose 0.1% in July, annual inflation eased to 3.4%, matching forecasts
- Odds of a September Fed rate hike dropped from 54% to around 40% after the data
- The U.S. Dollar Index traded flat near 100.03 on Thursday
- Iran-U.S. peace talks stalled, keeping oil prices elevated near $89 a barrel for Brent
- The Japanese yen stayed under pressure, with USD/JPY near a two-week high at 159.40
The U.S. dollar held its ground on Thursday after July inflation data came in exactly as expected, giving markets little reason to shift their outlook dramatically.
The U.S. Consumer Price Index rose 0.1% in July on a monthly basis. Annual inflation eased slightly to 3.4%, down from 3.5% in June. Core CPI, which strips out food and energy, rose 0.2% for the month and 2.5% year over year.
All figures matched analyst forecasts. The data triggered little market reaction beyond a modest pullback in rate hike expectations.
The U.S. Dollar Index traded flat at around 100.03 on Thursday morning. The index had gained 0.2% the day before and was holding in a narrow range.
Fed Rate Hike Odds Fall but Stay Alive
The probability of a Federal Reserve rate hike at the September meeting fell to around 40%, down from 54% before the CPI report. Analysts at MUFG said the data should allow the Fed to hold rates steady for now, but is unlikely to shift policy positions at this stage.
BREAKING: July CPI inflation falls to 3.4%, in-line with expectations of 3.4%
Core CPI inflation falls to 2.5%, also in-line with expectations of 2.5%.
Month-over-month CPI inflation rose +0.1%, up from -0.4% in June.
US stock market futures are rising on the news.
— The Kobeissi Letter (@KobeissiLetter) August 12, 2026
Deutsche Bank noted that pricing of a September hike dropped to its lowest level since the June Fed meeting. However, the bank’s economists still expect a hike in September, saying the CPI data reduced urgency without removing the possibility.
Deutsche Bank also stressed that while near-term concerns eased, the report did nothing to address longer-term issues around deficits, supply, and term premium.
Markets are now watching U.S. producer price data and weekly jobless claims due later Thursday. Retail sales figures are also on the radar as traders seek more clues on the Fed’s direction.
Yen Under Pressure, Oil Stays Elevated
The Japanese yen stayed under pressure. The USD/JPY pair was trading near 159.40, close to a two-week high. Tokyo and Washington confirmed coordinated yen-buying intervention earlier this month after the currency fell to 40-year lows.
Geopolitical tensions added pressure to markets. Iran said there had been no progress in efforts to revive an interim peace deal with the U.S. Washington accused Tehran of failing to honor commitments to reopen a key shipping route. Iran says the U.S. has not met its own obligations.
Brent crude stayed near $89 a barrel. TD Securities said it continues to expect oil to move higher, which could push headline inflation up later in the year and keep a December rate hike on the table.
Gold pulled back slightly, trading near $4,370 in European trading after holding above $4,400 on Wednesday. The Australian dollar slipped 0.2% against the U.S. dollar.
UK GDP data showed the economy grew 1.2% annually in the second quarter, slightly above expectations, though industrial and manufacturing output fell in July.
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