US Dollar Index Drops as Inflation Data Cools

The Federal Reserve System maintained the federal funds rate at 3.5% to 3.75%, though three FOMC members voted for an increase. Despite this stability, the US dollar declined 1.54% to close at 99.91 for the week ending July 31, 2026. This retreat followed the release of June core PCE price index data from the Bureau of Economic Analysis, which showed a 0.1% increase, missing the predicted 0.2%.

Market participants interpreted the weaker inflation data as a signal that the Federal Reserve may temper expectations for a September rate hike. The dollar faced additional pressure from the US Treasury Department and Japan's finance ministry, which coordinated efforts to buy the Japanese yen. Optimism also grew regarding renewed dialogue between the US and Iran to end the Middle East war and potentially reopen the Strait of Hormuz.

Conversely, the euro and British pound rallied against the dollar. The European Central Bank saw a strengthened case for a September rate hike due to strong Eurozone GDP readings, while the Bank of England kept its Bank Rate unchanged at 3.75%.