Dollar Recovers After CPI Dip as Hormuz Risks Keep Traders Cautious

The U.S. dollar recovered from an initial post-CPI decline on Wednesday as traders balanced softer inflation against renewed geopolitical risks surrounding the Strait of Hormuz.

The Dollar Index rose 0.2% to 99.98, after falling as low as 99.61 following the release of July inflation data. U.S. headline CPI increased 0.1% month on month, while annual inflation slowed to 3.4% from 3.5%. Core CPI rose 0.2% month on month, with annual core inflation easing to 2.5% from 2.6%. All four readings matched expectations.

The data reduced pressure on the Federal Reserve to raise rates in September. CME FedWatch showed the probability of rates remaining unchanged rising to 62%, from 54% before the report. A weaker jobs report last week has also reinforced expectations that the Fed may have more time to assess inflation and employment conditions.

However, the dollar found support as oil prices remained elevated. Brent crude briefly reached $90 amid continued uncertainty over efforts to reopen the Strait of Hormuz. Prolonged disruption could keep energy costs high and complicate the inflation outlook.

The yen also remained under pressure, with USD/JPY around 159.46, as traders continued to monitor the risk of further intervention following recent joint action by Japan and the U.S.

For Southeast Asian FX traders, the next key catalyst is U.S. PPI, which could provide another signal on underlying price pressures. With oil, Fed expectations and intervention risk all in play, USD/JPY and regional dollar pairs could remain highly headline-sensitive.