Dollar Eases as Soft US Inflation Cools Fed Hike Bets

The US Dollar Index closed Friday's session at 99.5160, down 0.29%, with EUR/USD touching an eight-week high on the same move. The slide tracked July CPI cooling to 3.4% y/y, which pared Fed rate-hike expectations — the 2026 policy question remains whether the Fed hikes further from its 3.50-3.75% target, not whether it cuts. Treasury yields nonetheless rose on the day: the 10-year added 5.5bp to 4.696%, the 5-year 4.9bp to 4.362%, the 30-year 5.2bp to 5.265%, while the 3-month slipped 0.8bp to 3.697%. Risk appetite firmed alongside the dollar's retreat — the VIX fell 3.42% to 15.25 and gold added 0.57% to 4375.77, with a Mining.com.au headline reading, 'Gold price regains momentum as Fed rate hike fears recede.'

The Fed funds target sits at 3.50-3.75%, and the live 2026 policy debate is whether the Fed hikes further, not whether it cuts. Friday's session complicated that story: US July CPI cooled to 3.4% y/y (released Aug 12 by the BLS), which desk notes tie to fading Fed rate-hike expectations and Friday's broad dollar weakness. Yet yields moved the other way on the day — the 10-year rose 5.5bp to 4.696%, the 5-year 4.9bp to 4.362%, the 30-year 5.2bp to 5.265%, and the 3-month eased 0.8bp to 3.697%. The 20+ Year Treasury ETF fell 0.69% to 81.99. No fresh Fed statement is in today's data, so the implied hike-odds shift comes from the CPI print and price action, not new Fed communication.

EUR/USD: up 0.36% to 1.1570, an eight-week high, helped by a June eurozone goods trade surplus of €8.6bn and confirmed Q2 GDP growth of 0.4% q/q / 1.0% y/y, plus the softer US CPI backdrop. GBP/USD: up 0.34% to 1.3533, back above 1.3500 on what FXStreet called 'generalised US Dollar weakness' rather than UK-specific news. USD/JPY: down 0.12% to 159.31 on the day but on track for a weekly gain of roughly 0.6% (from 158.40 the prior Friday) as fading intervention effects embolden yen sellers even as BoJ Governor Ueda has signalled a possible September hike. USD/CAD: down 0.41% to 1.3874, its third straight weekly decline, on narrowing Canada-US 2-year yield spreads and a strong Canadian jobs report.

USD/CAD fell 57 pips in Friday's session, about 0.4%, from 1.39309 to 1.38737, ranging 1.38642 to 1.39334 — its third consecutive weekly CAD gain, with the pair touching a multi-week low near 1.386 intraday. The move traces to narrowing Canada-US 2-year yield spreads after Statistics Canada's July jobs report (published Aug 7) showed employment up 75,100 versus 15,000 expected and unemployment falling to a two-year low of 6.4%. Softer US July CPI at 3.4% y/y added broad dollar weakness on top. WTI crude settled near $81.50/bbl on Friday (81.47), a secondary support for the petrocurrency. No Bank of Canada officials commented on FX levels this week. Markets are closed for the weekend; Monday, Aug 17 brings Statistics Canada's July CPI and International Securities Transactions data at 8:30am ET, with no BoC decision due until Sept 2 (rate held at 2.25% since July 15).

Markets are closed for the weekend (Sat Aug 15-Sun Aug 16); today's economic calendar shows no scheduled releases. Looking to Monday, Aug 17: Statistics Canada publishes July CPI and International Securities Transactions data at 8:30am ET, and Japan releases final Industrial Production for June at 00:30 JST. Later in the week: Japan Machinery Orders (June) Tuesday Aug 18 at 19:50 JST; UK labour market data Tuesday Aug 18; UK CPI Wednesday Aug 19; the eurozone's final July HICP reading Wednesday Aug 19; UK retail sales and flash August eurozone/Germany PMIs Friday Aug 21. No Bank of Canada decision until Sept 2 and no BoJ meeting until Sept 18.