Dollar Slips As July CPI Cements Odds Of A September Fed Cut
Softer inflation knocks Treasury yields and the greenback; euro and yen firm, rupee rallies
August 13 EST: The U.S. dollar lost altitude for a second session as traders finally behaved like the Federal Reserve’s first rate cut is not a thought experiment but a near-term risk. Soft July inflation took the heat out of the trade, Treasury yields bled lower, and the greenback’s yield advantage thinned.
On desks, it felt less like capitulation and more like a clean repricing ahead of the September meeting. According to Reuters, rate futures at one point put the probability of a September cut near certainty.
What Actually Moved The Dollar
Good news for consumers was bad news for the buck. Headline CPI rose 0.2 percent in July and 2.7 percent from a year earlier, roughly in line with forecasts, while core inflation ran a touch firmer at 0.3 percent on the month and 3.1 percent year over year.
That mix was enough for markets to conclude the Fed can begin easing, even if services prices are still sticky. The rate story did the rest, pulling two-year yields down and taking the dollar index to its lowest level since late July. In plain English, the carry on dollars just got a little less compelling.
The Tape, Not The Talk, Drove Pricing
This was about flows and math, not a mood swing. The market watched the CPI print, marked down the path of policy, and adjusted FX accordingly. LSEG data, cited by Reuters, showed odds of a 25 basis point cut in September surging to roughly 98 percent at one point.
That is the kind of pricing that forces CFOs and treasurers to revisit their discount rates and hedge books. A quarter point may sound small, but when you are valuing projects, refinancing a term loan, or rolling commercial paper, it changes the conversation in the room.
Politics Crept Into The Macro
Traders also had to factor in something they would rather ignore the drumbeat around Fed independence. As reported by Reuters, the White House said President Donald Trump is considering legal action against Fed Chair Jerome Powell tied to renovations at the central bank’s headquarters. Lawsuit threats are not policy, but the noise raises the risk premium that typically weighs on a reserve currency. Currency markets prefer boring. This is not that.
A Quick Read Across The Majors
When the dollar relents, rate differentials do the talking. The euro edged higher, sterling firmed, and the yen found support as the gap in yields narrowed on expectations the Fed moves first. The dollar index slipped to roughly 97.8, a two-week low, extending Tuesday’s slide. None of these are heroic moves, but they are consistent with a market that now expects U.S. policy to loosen before most peers follow. As always, the next data points will referee the move.
Why The Inflation Detail Matters
The CPI report was not all-clear. Core services stayed warm, and some tariff-sensitive goods picked up, a reminder that the tariff pass-through may arrive in drips, not a flood. Reuters flagged concerns around data quality after staffing strains at the Bureau of Labor Statistics, a wrinkle the Fed cannot ignore if volatility creeps into the numbers.
Still, with headline inflation at 2.7 percent and labor data softening, investors felt they had enough to pencil in an initial cut. Think of it like a board deciding to trim prices to defend market share while watching input costs. Not perfect, but defensible.
Emerging Markets Took The Opening
If you run money in emerging markets, a softer dollar is a green light to take a little more risk. The Indian rupee did just that. It notched its biggest daily gain in more than a month, closing near ₹87.44 per dollar as carry trades looked safer and U.S. cut odds climbed.
Local pricing now implies strong odds of a September move and roughly 60 basis points of cumulative easing into year end, according to Reuters. Dealers still warned about headline risk and global growth, but for once the tide was with Asia.
How This Lands In Real Businesses
For exporters in New Jersey selling plastics, specialty chemicals, or medical devices into Europe and Asia, a softer dollar is a small tailwind. Invoices convert back into more dollars, margins look cleaner, and sales teams get a bit of pricing flexibility. Import-heavy retailers get the opposite, though the immediate impact is muted because most firms hedge inventory costs.
Mortgage desks will watch the front end of the curve. If the Fed cuts and Treasury yields hold lower, thirty-year rates can drift down and refi math starts to work again. For private equity and founder-led companies eyeing a sale, a lower WACC fattens discounted cash flows and, sometimes, the bid-ask gap narrows. That said, anyone who lived through the last two years knows one soft CPI print does not guarantee a glide path.
The Equity Angle, Briefly
Stocks liked the setup. With inflation steady at 2.7 percent and the growth scare not front and center, the Financial Times reported record U.S. equity levels as investors rotated back into interest-sensitive names. That lines up with what you see in a quarterly model shave the discount rate by 25 basis points and your DCF stops punishing anything with cash flows beyond year three.
Add a weaker dollar, and multinationals get translation help on the next earnings call. It is not a rally built on fairy dust, but it does depend on the Fed delivering a first step.
Risks That Could Flip The Trade
Three things can still break this narrative. First, August inflation that pops higher would force the Fed to wait, putting the dollar’s reprieve on hold. Second, any hard evidence that tariffs are seeping into consumer prices faster than expected would spook both bonds and FX.
Third, political interference that clouds the Fed’s reaction function would add a premium to the dollar even as yields fall, a perverse outcome that happens when policy becomes less predictable. In other words, the market is betting on a clean handoff to easing, not a bumpy transfer.
Bottom Line
This is what a repricing looks like when the macro finally lines up. Softer CPI, weaker yields, and near-locked cut odds pushed the dollar to a two-week low, lifted the euro and yen, and gave the rupee room to run. It is not euphoria. It is the kind of shift that shows up first in basis points, then in budgets, then in earnings calls. If incoming data cooperate, September becomes the starting gun for the Fed.
If not, today’s foreign-exchange move reads like a head fake, and boards are back to contingency plans by Labor Day.
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A Wall Street veteran turned investigative journalist, Marcus brings over two decades of financial insight into boardrooms, IPOs, corporate chess games, and economic undercurrents. Known for asking uncomfortable questions in comfortable suits.
