The US dollar's recent advance stalled on Thursday after the latest American inflation data came in benign, prompting traders to scale back expectations for a near-term Federal Reserve interest rate hike.

The dollar index, which measures the greenback against a basket of six major currencies, remained largely flat in intraday trading, though it was still on track for a weekly gain. The index is a widely used benchmark for the dollar's value relative to trading partners including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. Because many commodities, including oil and gold, are priced in dollars, shifts in the index ripple across global markets and affect the cost of imports and exports for economies worldwide.

Following the inflation release, money markets significantly reduced the probability of a Federal Reserve rate hike at the central bank's September policy meeting. The Federal Open Market Committee (FOMC), the Fed's monetary policy-setting body, adjusts benchmark interest rates in response to inflation and labor market conditions as part of its dual mandate of price stability and maximum employment. Higher rates typically strengthen the dollar by attracting capital inflows seeking higher yields, while expectations of rate cuts or pauses tend to weigh on the currency.

Other major currencies showed mixed performance against the dollar. Currency movements reflected diverging monetary policy expectations across global economies, as investors assessed the pace of potential rate adjustments by major central banks including the European Central Bank and the Bank of Japan. The ECB has been navigating its own inflation fight, while the Bank of Japan has maintained its ultra-loose policy stance, leaving the yen under pressure relative to peers. Traders are likely to focus on upcoming US employment and inflation reports, as well as scheduled remarks from Fed officials, for further signals on the rate path.

Source: Economic Times Markets