Weak inflation data dampens rate hike expectations, US dollar hovers near one-month low

1. The US Dollar Index hovered around 100.50 on Thursday, near the one-month low of 100.35 reached overnight—the lowest since June 18. The US Producer Price Index for June unexpectedly declined, marking the largest month-on-month drop in 14 months, further confirming that inflation had already shown signs of easing before the escalation in Middle Eastern tensions.2. Combined with previously weaker-than-expected June CPI and employment growth data, the market's probability estimate for a Fed rate hike in July has plummeted from 45% earlier this week to 11%. However, the market still sees a roughly even chance (50/50) of at least a 25 basis point hike in September.3. Analysts note that a cooldown in single-month data is unlikely to signal sustained inflation relief, and escalating tensions in the Middle East should limit the downside for the US Dollar. Thursday saw oil prices rise for the fourth consecutive trading day, with Brent crude staying near its monthly high at $85.25 per barrel, as ongoing Middle Eastern tensions continue to exert upward pressure on the inflation outlook.