USD Weakens Across Major Pairs as Soft US Inflation Reduces Fed Hike Odds

The US Dollar Index retreated during the week ended July 17, as better-than-expected inflation readings diminished expectations for further Federal Reserve rate hikes. Softer CPI data reinforced the narrative that the Fed's tightening cycle may be nearing its conclusion, prompting broad-based dollar selling against major counterparts including EUR/USD, GBP/USD, and USD/JPY. The cooling inflation figures suggest price pressures are easing more rapidly than anticipated, giving the Fed room to pause or hold rates steady at upcoming meetings. Market participants have significantly repriced rate hike probabilities, with fed funds futures now reflecting reduced odds of additional tightening. The dollar's decline benefited risk-sensitive currencies and commodity-linked pairs such as AUD/USD and NZD/USD. Traders should monitor upcoming Fed commentary and next month's inflation data for confirmation of the disinflationary trend. Near-term, the DXY faces support at recent weekly lows, while resistance sits at pre-CPI levels. A sustained shift in rate expectations could extend the dollar's downside trajectory in the weeks ahead.