Dollar slips as Fed hike odds fall to 31% after flat July PPI

The U.S. dollar fell to 99.88, its lowest level in weeks, after the July Producer Price Index (PPI) printed unchanged and Fed funds futures cut the probability of a September rate hike to 31% [1].

Inflation data trims Fed hike bets

The PPI for final demand posted a flat reading for July, breaking the Reuters consensus that had called for a 0.2% rise and following a revised 0.1% decline in June [1]. The unchanged figure, coupled with a modest CPI increase the day before, led traders to slash the odds of a Fed rate hike in September to 31%, down from 40% just 24 hours earlier and 55% a week prior [1]. State Street senior macro strategist Noel Dixon noted that the components feeding into the upcoming personal consumption expenditures (PCE) report “should be pretty good,” reinforcing the case for the Fed to hold rates steady in September [1].

Currency moves reflect shifting risk appetite

The dollar index’s 0.07% dip left the euro up 0.1% at $1.1536 and the yen strengthening 0.14% to 159.19 per dollar [1]. The pound also edged higher, gaining 0.08% to $1.3503, while the Norwegian krone weakened as Norges Bank kept rates unchanged at 4.25% [1]. Oil prices fell on concerns over weaker global demand and rising U.S. crude inventories, further easing pressure on the dollar, which often benefits from higher oil‑related inflows [1].

Market backdrop and lingering uncertainties

Despite the softer inflation prints, broader market sentiment remains mixed. Inflation still sits above the Fed’s 2% target, and oil price volatility linked to tensions in the Strait of Hormuz adds a layer of risk [1]. Earlier in July, the dollar had hovered near a one‑month low with a Fed hike probability of just 10% for July, illustrating how quickly market expectations can swing on new data [2].

What to watch

• June PCE price index: Released later this month, it will provide a more direct gauge of inflation trends that the Fed monitors.
• Fed’s September policy meeting (Oct 28): Any shift in the Fed’s stance on rates will be reflected in futures and the dollar index.
• Oil price movements: A sustained rise or fall could re‑tilt safe‑haven flows back toward or away from the dollar.

The flat PPI underscores a potentially easing inflation backdrop, but the Fed’s path remains uncertain as it balances stubborn price pressures against a still‑robust labor market. The dollar’s near‑flat trajectory will hinge on upcoming inflation data and any geopolitical shocks to energy markets.