US dollar index falls below 100 as CPI and PPI soften

The U.S. dollar index slipped to 99.67 on Friday, its first dip below the 100 mark after July’s headline CPI rose only 0.1% and producer‑price inflation stalled at 0% month‑over‑month, cutting market expectations for a September rate hike to 33%【1】.

Inflation data eases but remains above target

July’s headline CPI increased 0.1% after a 0.4% decline in June, while the annual rate slipped to 3.4% from 3.5%【1】. Core CPI rose 0.2% month‑over‑month and its year‑over‑year pace eased to 2.5% from 2.6%. Energy prices fell 1.5%, but shelter costs edged up 0.1%. Producer‑price inflation showed a similar slowdown: the headline PPI was unchanged, missing a 0.2% rise that analysts had forecast, and its annual rate fell to 4.7% from 5.5%【1】. Core PPI rose 0.2% for the month and 4.2% year‑over‑year. These readings suggest cooling price pressures, yet core PCE inflation remains at 3.3%—well above the Fed’s 2% goal【1】.

Market reaction and Fed outlook

The softer CPI and flat PPI prompted traders to trim expectations for a September rate increase, with the probability of a hike falling to 33% and the December odds lingering at 45%【1】. Consequently, short‑term Treasury yields slipped while longer‑term yields stayed elevated, flattening the yield curve. The dollar’s decline reflects reduced demand for safe‑haven dollars amid weaker inflation, even as high long‑term yields continue to support some dollar demand【1】. Fed officials remain divided: President Thomas Barkin sees current rates as sufficient, whereas Cleveland Fed President Beth Hammack favors a more aggressive stance【1】.

Economic backdrop

Retail sales fell 0.6% in July after a 0.2% rise in June, and core retail sales slipped to 0.4%【1】, underscoring weakening consumer demand. Employment growth slowed, with employers trimming staff in July, though the unemployment rate held at a historic low of 4.1%【1】. Consumer sentiment dropped to 51.0 in August, below the 55.2 reading in July, while one‑year inflation expectations rose to 4.3%【1】. These mixed signals add uncertainty to the Fed’s policy path.

What to watch

• July‑August inflation releases – any rebound in CPI or PPI could revive expectations of a September hike.
• Federal Reserve September meeting – the Fed’s decision will hinge on whether inflation continues to ease.
• Key dollar support levels – a break below 99.0 could open the path toward 96.0, while a rebound above 100.5 may restore bullish momentum.

The dollar’s slide below 100 highlights how quickly market pricing can shift on modest inflation data, but the persistence of core inflation above target keeps the Fed’s policy outlook uncertain, leaving the currency’s near‑term trajectory dependent on upcoming price reports.