Dollar hovers around 1-mth low as soft CPI data spurs rate cut bets

Investing.com-- The dollar steadied against a basket of currencies on Friday after softer-than-expected inflation data saw the greenback sink to one-month lows, amid increased bets that the Federal Reserve will cut interest rates in September.

Broader foreign exchange markets were somewhat cautious amid volatility in the Japanese yen. The Japanese currency strengthened sharply on late-Thursday, which sparked speculation over whether the Japanese government had intervened in currency markets.

The euro moved little against the dollar German wholesale price index inflation data read slightly weaker than expected for June. The EURUSD pair steadied after surging to an over one-month high against the dollar on Thursday.

The British pound was also flat, with the GBPUSD pair moving little after rallying to a near one-year high against the dollar on Thursday. The pound was also buoyed by data on Thursday which showed the British economy grew more than expected in May.

Dollar near 1-mth low as soft CPI spurs rate cut bets 

The dollar index and dollar index futures steadied on Friday after tumbling to a one-month low in overnight trade.

The greenback was battered by softer-than-expected CPI data, which showed inflation cooled a smidge more than expected in June. 

The reading ramped up bets that the Federal Reserve will have more confidence to begin cutting interest rates.

Traders were seen pricing in a 83.4% chance the Fed will cut rates in September, compared to a 64.7% chance seen last week, according to CME Fedwatch.

Japanese yen volatile after USDJPY tumbles from 161; intervention in focus 

The Japanese yen was volatile in Friday trade, with the USDJPY pair rising 0.2% to about 159.18 yen.

The pair slid over 2% on Thursday after the soft U.S. CPI report, dropping from levels close to a 38-year high, which it had hit earlier in July.

But the sharp drop in the yen sparked questions over whether the Japanese government was actively intervening in currency markets. Officials gave scant cues on the matter, even after offering a string of warnings in recent weeks over betting aggressively against the yen.

Data on the Bank of Japan’s balance sheet, due later in July, is expected to offer more clarity on whether the government did intervene. Traders also speculated whether short positions on the yen were squeezed by a sharp decline in the dollar, following the weak CPI reading for June.