The U.S. dollar fell to its lowest level in two weeks after weak inflation data from the United States boosted expectations that the Federal Reserve will cut interest rates next month. Efforts by U.S. President Donald Trump to expand his influence over American institutions added further pressure on the currency.
The dollar index, which measures the currency’s performance against a basket of major peers, dropped to 97.76 its lowest since late July extending the 0.5% loss recorded the previous day.
Data showed that U.S. consumer prices rose only slightly, in line with expectations, while the impact of tariffs imposed by Trump on goods prices remains limited so far. Investors welcomed the figures, seeing them as supportive of rate cut prospects, with markets pricing in a 98% probability of a rate cut next month, according to LSEG data.
One strategist noted that the inflation data was negative for the dollar, adding that a September rate cut remains highly likely. While core inflation acceleration is not ideal, it is not significant enough to overlook the weakness in the labor market.
Investor confidence in the dollar also waned amid rising tensions between Trump and Federal Reserve Chair Jerome Powell. The White House spokeswoman stated that the president is considering suing Powell over his handling of renovation works at the Fed’s Washington headquarters. Trump has been a frequent critic of Powell for being slow to cut rates and recently targeted Goldman Sachs CEO David Solomon, claiming the bank’s forecasts on the economic impact of tariffs were wrong and questioning whether Solomon should continue leading the institution.
Meanwhile, other currencies benefited from the dollar’s weakness. The euro rose 0.3% to its highest level since late July, while the British pound gained 0.4% to reach its highest since mid-July, despite weakness in the U.K. labor market. Strong wage growth has kept the Bank of England cautious about rate cuts.
The Australian dollar climbed 0.35%, and the New Zealand dollar rose 0.5%. The Reserve Bank of Australia cut interest rates as expected and signaled the possibility of further monetary easing to meet its inflation and employment goals, amid a slowdown in economic growth.
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