The euro gained against the dollar on Wednesday after US inflation data came in softer than forecast, leading traders to scale back bets on another Federal Reserve rate hike in October. Core price growth slowed more than expected even as it stayed well above the Fed's target.
The euro rose 0.15% to $1.135725 on Wednesday after data showed US inflation cooled more than expected in August, cutting the odds of another Federal Reserve rate increase in October.
The single currency is still headed for a monthly loss against the dollar after two consecutive months of gains, even after Wednesday's rebound.
Core inflation undershoots forecasts
Commerce Department data showed the personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 0.3% last month, below the 0.4% increase economists polled by Reuters had forecast. Excluding food and energy, core PCE climbed 0.2% for the month, putting the annual rate at 3%, versus forecasts of 0.3% and 3.3%. Both readings remain well above the central bank's 2% target.
Traders scale back October rate-hike bets
Markets are now pricing a nearly 35% probability of a Fed rate hike in October, down from 70% a week ago, according to the CME's FedWatch tool. The 2-year Treasury note yield, which typically moves with Fed rate expectations, fell 4.15 basis points to 4.848%.
According to CNBC: "This is good news for investors worried about the recent surge in bond yields", said David Russell, global head of market strategy at TradeStation.
Dollar slips broadly
The dollar also weakened 0.25% to 156.7987 yen. Sterling strengthened 0.44% to $1.3287. The dollar index fell 0.2% to 101.20, though it is still headed for a monthly gain in September.
Sources: CNBC, Investing.com
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