US Dollar Index Drops Below 98.50 on Weak CPI and Fed Rate Cut Expectations

US Dollar Index Falls to 98.40 as Soft CPI Data Boosts Fed Rate Cut Odds

The US Dollar Index (DXY) dropped further below 98.50 in early Thursday Asian trading, currently hovering around 98.40. This marks the second consecutive day of declines for the Greenback, as soft inflation figures from May reinforce expectations for a September rate cut by the Federal Reserve (Fed).

US CPI Misses Forecasts, Pressures the Dollar

According to the US Bureau of Labor Statistics, the Consumer Price Index (CPI) rose 2.4% year-over-year in May—just above April’s 2.3%, but below the market forecast of 2.5%. The Core CPI, which excludes volatile food and energy categories, increased 2.8% YoY, also under the 2.9% consensus.

These figures indicate that inflation remains relatively tame, prompting markets to price in a higher probability of a rate cut in September. The CME FedWatch Tool now shows nearly 68% odds of a 25 basis point cut, up from 57% prior to the CPI release.

“Subdued inflation readings continue to be the main driver behind the market’s anticipation of Fed policy easing,” analysts noted.

Trump Confirms US-China Trade Deal Completion

Further impacting the dollar’s trajectory, former President Donald Trump confirmed on Truth Social that a US-China trade deal is finalized, pending final approval by himself and Chinese President Xi Jinping.

“We are receiving a total of 55% tariffs, China is receiving 10%. Relationship is excellent!” Trump posted, adding that he is willing to extend the trade talk deadline, although he believes it won’t be necessary. He also warned of unilateral tariff implementation within two weeks if needed.

This statement suggests ongoing trade cooperation but underscores underlying trade policy uncertainty, which could also weigh on the USD in the near term.

Key Takeaways:

• DXY trades near 98.40, extending losses for a second day.
• US CPI (2.4%) and Core CPI (2.8%) underperform expectations.
• Traders now price a 68% probability of a Fed cut in September.
• Trump says the US-China trade deal is “done,” awaiting formal signature.
• Tariff threats remain, keeping USD outlook mixed.

Read More on Tredu.com:

• CPI and Its Impact on Fed Policy Decisions
• US Dollar Index: Why It Matters
• How Trade Deals Influence the Forex Market