USD Weakens as In-Line U.S. CPI Data Cools Fed Rate Hike Expectations

The U.S. dollar faced broad selling pressure as July's Consumer Price Index data came in line with market expectations, prompting traders to scale back bets on further Federal Reserve rate hikes. The matched CPI readings removed a key catalyst for dollar bulls, as markets had been pricing in the possibility of hotter-than-expected inflation fueling additional monetary tightening. With rate hike expectations now ebbing, risk sentiment across global equity and currency markets improved meaningfully, benefiting risk-sensitive currencies such as the Australian dollar and other commodity-linked pairs. The softer rate outlook weighed on U.S. Treasury yields, further undermining dollar demand. Traders are now recalibrating their positioning around the Fed's forward guidance, with upcoming employment data and Fed commentary likely to shape the next directional move. For dollar pairs, the shift in sentiment suggests near-term downside risk for the greenback, particularly against currencies where central banks maintain a relatively hawkish stance. Market participants should watch for follow-through in risk appetite as the key driver in the sessions ahead.