Traders dial back Fed rate hike bets after weaker-than-expected US inflation data but geopolitical risks limit dollar downside.
The US dollar pared losses against the Japanese yen after softer-than-expected US core CPI data prompted a dovish repricing of Federal Reserve rate hike expectations. Markets now see a September hike as the earliest possibility, with December fully priced in, down from prior bets on a July move.
Despite the inflation miss, escalating Middle East tensions—including the US-Iran crisis and potential Strait of Hormuz disruptions—kept inflation risks elevated, supporting the dollar. Oil prices rose, reigniting concerns over persistent price pressures, while Japanese officials warned of stealth interventions to curb yen weakness.
USD/JPY remained rangebound below the 162.85 cycle high, with a bullish tilt near the 160.50 support level. Analysts suggest further yen depreciation is possible if geopolitical risks persist or worsen.