Key facts
- U.S. consumer inflation rose 4.2% year-on-year in May, matching economists' expectations.
- The dollar index fell 0.1% as traders adjusted rate hike expectations.
- Bets on a September Federal Reserve rate hike decreased, but conviction for an October hike remained.
- The Japanese yen held steady around 160.475 against the dollar.
- The Canadian dollar and British pound saw modest gains against the U.S. dollar.
The U.S. dollar weakened after data showed consumer inflation rose to its highest level in three years in May, though the reading met economists' expectations. This suggests that soaring energy prices, exacerbated by the Iran war, are not yet significantly impacting core inflation measures targeted by the Federal Reserve.
Traders are now pricing in a lower probability of a Federal Reserve rate hike in September, but continue to show strong conviction for an increase by October. The dollar index, which measures the currency against six major peers, saw a modest decline. Meanwhile, the Japanese yen remained under pressure, hovering around a level that signals potential for official intervention, as the Bank of Japan is expected to hike rates soon.
Other currencies saw mixed movements, with the Canadian dollar advancing and sterling gaining slightly against the dollar. Bitcoin remained largely flat on the day.