Dollar drops to two-month low after U.S. inflation slows

The dollar sank to a new two-month low on Wednesday after data showed the rise in U.S. consumer prices eased in June, suggesting that the Federal Reserve may have to raise interest rates just one more time this year.

The dollar index dropped as low as 101.04, the lowest in two months, after the data, and was last down 0.4% at 101.27.

The greenback also hit its lowest against the Swiss franc since early 2015 after the inflation report. It was last down 0.6% at 0.8750 francs, having fallen to a session low of 0.8735 earlier, its weakest since the Swiss National Bank removed the peg from the Swiss currency in January 2015.

Core U.S. consumer prices rose just 0.2% in June, compared with forecasts for a gain of 0.3%.

On an annual basis, U.S. CPI advanced 4.8%, lower than market expectations for a 5% increase. That was also the smallest annual increase in more than two years.

U.S. rate futures still show traders overwhelmingly expect the policy rate to rise a quarter point, to a 5.25%-5.5% range, at the Fed’s July 25-26 meeting, but now see about a 25% chance of another rate hike before year’s end, down from about 35% before the report.

“The Fed may have talked itself into a corner with a July 26th rate hike. The data don’t confirm that they need to actually hike,” said Brian Jacobsen, chief economist, at Annex Wealth Management, in Menomonee Falls, Wisconsin.

“Since they’re stubborn, they’ll probably do it anyways. Thankfully the market has been expecting that hike. The end is near for hikes.”