US inflation data matched forecasts, trimming September Fed rate hike odds to 38% and weighing on the USD.
GBP/USD rose to 1.3523, its highest level since July 16, as US inflation data reduced expectations for a Federal Reserve rate hike in September. The headline Consumer Price Index (CPI) increased 0.1% month-over-month in July, while the annual rate slowed to 3.4% from 3.5%. Core CPI rose 0.2% MoM, with the yearly rate easing to 2.5%.
The US Dollar Index (DXY) fell 0.15% to 99.67, and US Treasury yields declined, with the two-year yield down 4.6 basis points. Despite the in-line data, inflation risks persist due to elevated energy prices, keeping WTI crude near $81.60 per barrel. Traders now see a 38% chance of a September rate hike, down from 44% before the release.
The Fed is expected to maintain a restrictive policy stance until inflation moves closer to its 2% target. Geopolitical tensions in the Strait of Hormuz continue to support oil prices, limiting downside risks to the USD.