Dollar Slips as Soft CPI Overrides Middle East Oil Jitters

Crude oil held near session highs after fresh geopolitical headlines from the Middle East. The inflation data dominated currency trading regardless. Treasury yields fell after the CPI miss, narrowing the dollar's rate advantage against the pound and the euro.

Traders said the market now prices a higher probability of a September rate hold from the Federal Reserve. That repricing weighed on the dollar. The next test is Friday's producer price index, which will show whether the disinflation trend holds.

The setup leaves the dollar exposed to further losses if the PPI confirms the softer inflation picture. Sterling and the euro have room to run higher if US yields stay under pressure.