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The U.S. dollar strengthened on Wednesday as mixed July inflation data reinforced expectations that the Federal Reserve could keep interest rates unchanged in September. Meanwhile, the Canadian dollar weakened again as escalating U.S.-Canada trade tensions weighed on sentiment.
The U.S. dollar index, which measures the greenback against six major currencies, rose 0.3% to 99.16 by 15:44 ET.
Data from the Bureau of Economic Analysis showed the core Personal Consumption Expenditures (PCE) price index increased 0.2% month over month and 3.3% annually in July, matching forecasts. Headline PCE inflation rose 0.2% monthly and 3.7% year over year, slightly exceeding expectations.
The U.S. economy also remained resilient. Second-quarter GDP growth was unrevised at 1.5%, while durable goods orders climbed 1.1% in July, beating expectations for a 0.4% increase.
The combination of persistent inflation and steady economic activity strengthened expectations for a Fed pause. CME FedWatch data showed the probability of policymakers holding rates steady in September increased to nearly 64%, from around 60% a day earlier.
The dollar's advance follows a volatile period for U.S. bonds and currencies. The dollar index lost nearly 1% last week as concerns about rising government debt and fiscal sustainability encouraged investors to seek alternatives such as gold and cryptocurrencies. Markets are now awaiting Fed Chair Kevin Warsh's Jackson Hole speech on Friday for further signals on monetary policy.
In currency markets, the Canadian dollar remained under pressure after U.S.-Canada trade negotiations collapsed and both countries imposed retaliatory tariffs. USD/CAD rose 0.3% to 1.3877 as President Donald Trump renewed criticism of Canada's trade relationship with the United States.
Elsewhere, USD/JPY edged 0.1% higher to 159.34, while the euro fell 0.2% to $1.1651. The Australian dollar gained 0.1% to $0.7172 after Australian annual inflation slowed to 3.5% in July from 3.8% in June.
