US inflation slowed more than expected in June, reducing odds of a July Fed hike to 12% and weighing on the dollar.
The US Dollar Index (DXY) dropped nearly 0.4% to 100.92 after June’s consumer price index fell 0.4% month-over-month, missing forecasts for a flat reading. Annual inflation slowed to 3.5% from 4.2%, below the 3.8% consensus, while core CPI remained unchanged versus expectations of a 0.2% rise.
May’s CPI had risen 0.5% MoM, with annual inflation at 4.2%. Core CPI had increased 0.4% MoM and 2.9% YoY in the prior month. The softer data prompted traders to slash July rate-hike probabilities to 12% from 40%, while September odds eased to 59% from 74%.
Despite the pullback, analysts cited sticky inflation and labor market resilience as factors that could support the dollar later this year. Escalating Middle East tensions and rising oil prices also kept Fed tightening expectations alive.