Forex Today: Risk Appetite Pressures US Dollar Ahead of Fed Speeches

Forex Today: US Dollar Slides on Risk Sentiment, Market Awaits Fed Comments

USD stays weak as markets remain in risk-on mode
The US Dollar (USD) started Wednesday on the back foot, continuing its downward slide seen on Tuesday. The USD Index trades below the 98.00 level amid growing investor appetite for riskier assets and waning safe-haven demand. The absence of high-impact economic data has shifted market attention toward upcoming speeches from Federal Reserve (Fed) policymakers, which may provide fresh insights into the path of monetary policy.

US inflation data supports dovish Fed outlook
The bearish tone for the USD was reinforced by Tuesday’s inflation report. Data from the US Bureau of Labor Statistics (BLS) revealed that the annual Consumer Price Index (CPI) remained steady at 2.7% in July, matching forecasts. On a month-over-month basis, headline CPI rose 0.2%, and core CPI — which excludes food and energy — climbed 0.3%, also meeting expectations.

More notably, the annual core CPI advanced to 3.1%, up from 2.9% in June and exceeding consensus estimates of 3.0%. However, markets took comfort in the fact that inflation did not accelerate drastically, reducing fears of tariff-related price spikes and bolstering hopes for interest rate cuts in the fourth quarter.

Currency performance this week
According to a currency heat map, the US Dollar is notably weaker across most major currencies so far this week:

USD Performance vs Majors (Weekly %)GBP: -0.71%EUR: -0.52%CHF: -0.60%AUD: -0.41%NZD: -0.40%JPY: -0.03%CAD: +0.06%

The most notable weakness is against the British Pound (-0.71%), while the only gain is a marginal 0.06% against the Canadian Dollar.

Market outlook
Traders now await commentary from Fed officials including Austan Goolsbee and Raphael Bostic later in the day, hoping to glean insights into whether recent inflation data is sufficient to trigger a rate cut as soon as September. The CME FedWatch Tool shows a 94% probability of a rate cut at the next policy meeting, up from 85% before the CPI release.

Until then, the USD may remain subdued as risk appetite dominates market sentiment.