USD Stalls as Benign US CPI Data Cuts Fed Rate Hike Expectations

The US dollar lost momentum on Thursday after softer-than-expected US inflation data prompted traders to scale back bets on a near-term Federal Reserve interest rate hike. The dollar index treaded water as market participants reassessed the Fed's policy trajectory, with rate futures now reflecting diminished probability of further tightening. The benign CPI reading suggests that disinflationary trends are gaining traction in the US economy, reducing urgency for additional monetary restriction. This development weighs broadly on the greenback against major counterparts including the euro, British pound, and Japanese yen. Dollar weakness is particularly notable against the yen, where the interest rate differential narrative has been a key driver. Traders are now focused on upcoming Fed commentary and labor market data to gauge whether the central bank will maintain its current stance or signal a pivot toward easing. Near-term, the dollar faces downside risk if incoming data continues to support the disinflation narrative, potentially pushing USD pairs toward key support levels across the board.