US Dollar Declines Following Soft CPI Reading

The US Dollar has seen a slight decline due to lower US inflation, which has dampened its appeal. The softer but in-line CPI figures have given markets reason to feed on a dovish narrative, and markets still anticipate the first rate cut in September.

The market’s expectations for the impending monetary policy decisions remained mostly unchanged, although the US economic trend estimate continues to lean toward growth rates above trend. This pattern raises the possibility that the market is once more overestimating the necessity of further aggressive monetary easing.

The dollar showed a slight downtrend below the 103.00 threshold during Wednesday’s trading session, following confirmation of cooler-than-expected inflation in the US. The projection of the US economic trend still points toward a growth rate above the trend, suggesting that the market might be overpricing the need for aggressive monetary easing in the future.

The cooling US inflation, as gauged by the Consumer Price Index (CPI), has mainly decided the day’s market dynamics. The headline CPI decelerated to 2.9% YoY in July from June’s level of 3%, slightly below market expectations. The possibility of a cut by the Federal Reserve (Fed) in September stands at around 80%.

The technical indicators of the DXY point to a persisting bearish market situation, with buyers failing to generate a significant uptick. The Relative Strength Index (RSI) remains near 30, indicating steady selling pressure, while the Moving Average Convergence Divergence (MACD) stabilizes while remaining in negative territory with low, red bars.