The U.S. dollar extended its decline on Wednesday after subdued inflation data reinforced expectations for a Federal Reserve rate cut next month.

At 04:25 ET (08:25 GMT), the Dollar Index — which measures the greenback against a basket of six major currencies — slipped 0.4% to 97.540, following a 0.5% drop in the previous session.

Fed Rate Cut in September?

U.S. consumer prices posted only a modest gain in July, Tuesday’s data showed, increasing the likelihood of a rate cut in September as tariffs from the Trump administration have so far had limited inflationary impact.

Markets are now pricing in a 98% probability of a Fed rate reduction next month, weighing heavily on the dollar.

“At this stage, the dollar has few bullish arguments to hold onto. Upcoming surveys might show improved activity, but the focus is squarely on the jobs market. A meaningful rebound in the dollar seems realistic only if labor data turns significantly stronger,” analysts at ING noted.

The session’s calendar is light, with key releases coming later in the week — producer prices on Thursday, followed by retail sales and consumer sentiment on Friday.

“The proximity to the Trump–Russia summit on Friday and the recent reassessment of ceasefire prospects mean the dollar may not decline much further for now,” ING added.

Euro Trades Higher

In Europe, EUR/USD advanced 0.3% to 1.1712, extending Tuesday’s 0.5% gain.

Spain’s EU-harmonized annual inflation rate rose to 2.7% in July from 2.3% in June, while Germany’s was confirmed at 1.8%.

“EUR/USD’s bullish setup strengthened after the U.S. inflation report, but a decisive breakout may be delayed until after the Trump–Putin meeting on Friday,” ING commented.

GBP/USD climbed 0.4% to 1.3560 after data showed U.K. wage growth remained robust, reinforcing the Bank of England’s cautious approach to rate cuts.

Yen Gains After PPI Release

USD/CNY was steady at 7.1763 after earlier losses this week, following a 90-day extension of the U.S.–China temporary trade deal. U.S. officials signaled that talks with Beijing will resume in the coming months.

USD/JPY fell 0.2% to 147.46, with the yen supported by stronger-than-expected PPI figures that could push the Bank of Japan toward further rate hikes.

AUD/USD rose 0.4% to 0.6551, with the Australian dollar advancing despite the Reserve Bank of Australia’s third rate cut of the year on Tuesday.