Dollar Dips As Fed Rate Hike Expectations Ebb After Soft U.S. Inflation Data

(RTTNews) - The U.S. dollar lost ground against its major counterparts in the European session on Wednesday, as the nation's consumer inflation slowed more than expected in July, reducing expectations for a 75 basis-point rate hike by the Federal Reserve in September.

Data from the Labor Department showed that the consumer price index came in flat in July after jumping by 1.3 percent in June. Economists had expected consumer prices to edge up by 0.2 percent.

Compared to the same month a year ago, consumer prices in July were up by 8.5 percent, reflecting a slowdown from the 9.1 percent spike in June.

The annual rate of price growth was expected to slow to 8.7 percent from the four-decade high seen in the previous month.

Core consumer prices, which exclude food and energy prices, rose by 0.3 percent in July after climbing by 0.7 percent in June. Core prices were expected to increase by 0.5 percent.

The annual rate of core consumer price growth was unchanged at 5.9 percent, while economists had expected an acceleration to 6.1 percent.

U.S. treasury yields fell following the data, with the benchmark 10-year yield touching 2.69 percent. Yields move inversely to bond prices.

Money markets are assigning only a 38 percent possibility for a rate hike of 75 basis points at the Fed meeting in September.

The currency held steady against its major rivals in the Asian session, except the yen.

The greenback depreciated to a 5-day low of 132.67 against the yen, from a 2-day high of 135.30 seen at 8:30 pm ET. The pair was worth 135.05 when it ended deals on Tuesday. The greenback is seen finding support around the 118.00 mark.

The greenback lost 0.9 percent against the euro, touching a fresh 5-week low of 1.0346. The pair had closed Tuesday's deals at 1.0213. Next near term support for the greenback is likely seen around the 1.06 level.

Final data from Destatis showed that German consumer inflation slowed as initially estimated in July but remained at an elevated level.

Consumer price inflation slowed to 7.5 percent from 7.6 percent in June. In May, headline inflation hit a record high 7.9 percent.

The greenback fell by 1 percent to an 8-day low of 1.2251 against the pound. The pound-greenback pair had finished yesterday's trading session at 1.2074. The greenback may face support around the 1.26 region, if it falls again.

The greenback was down by 1.1 percent against the franc, hitting nearly a 4-month low of 0.9407. At Tuesday's close, the pair was valued at 0.9529. Further fall in the greenback may find support around the 0.92 mark.

The USD/CAD pair weakened to a 9-day low of 1.2805. The greenback was trading at 1.2883 per loonie at yesterday's close. The greenback is likely to challenge support around the 1.26 mark.

After rising to a 2-day high of 0.6947 in the Asian session, the greenback reversed its course against the aussie and slipped to a 2-month low of 0.7082. The aussie-greenback pair was worth 0.6958 at Tuesday's close. Should the greenback falls further, it is likely to test support around the 0.72 region.

The greenback touched a 2-month low of 0.6411 against the kiwi, down by 1.9 percent from Tuesday's close of 0.6285. Continuation of the downtrend may lead the currency to a support around the 0.66 region.

U.S. monthly budget statement for July is due out in the New York session.