Dollar touches one-month low as softer U.S. inflation trims Fed hike bets

KUALA LUMPUR, 21 JULY 2026 —

The U.S. dollar held near its weakest point in a month on Thursday after data showed softer inflation, cutting the chance of a near-term Federal Reserve rate increase.

U.S. Treasury yields slipped on Wednesday after two straight days of tamer price readings, reducing the odds of a July Fed hike to 11% from 45% at the start of the week. September rate-hike expectations remain around 50%, according to CME Group’s Fed funds futures.

The dollar index, which tracks the currency against six peers, edged down 0.8% over the prior two sessions and stood little changed at 100.48, near its lowest since June 18. Oil prices slipped as traders booked profits while assessing risks from new U.S. strikes on Iranian targets, easing some safe-haven demand that usually lifts the dollar during energy spikes.

Jens Magnusson, chief economist at SEB, said investors often discount aggressive rhetoric. “Markets take note that Trump’s threats, rhetoric and deadlines are rarely fulfilled,” he said. “When oil and petrol prices rise too far, he backs down and prices fall back.”

The euro held at $1.1469 as European gas futures climbed to their highest level since March, raising concerns about higher energy costs and potential limits on euro strength. Sterling stayed near a two-month high at $1.354 after British data and expectations that the incoming prime minister will appoint a fiscally conservative finance minister.

The yen hovered near multi-decade lows, with focus on the Government Pension Investment Fund (GPIF). Finance Minister Katsunobu Kato said last week the government wants a “substantial” increase in domestic asset allocations, a shift strategists say could shape Japan’s forex market.

“GPIF’s signals suggest official-sector capital allocation is becoming an active policy tool rather than a long-term aspiration,” said Geoff Yu, senior EMEA macro strategist at BNY. “Investors should view this as the start of a multi-year structural shift beyond Japan.”

Analysts note GPIF, which last reviewed its strategy in 2025, can adjust holdings within its target bands and wield significant forex influence. The Australian dollar fell about 0.1% to $0.6995 and the New Zealand dollar lost 0.1% to $0.5842.