FX.co ★ Dollar Dips as US Inflation Meets Expectations

The dollar index edged down to 99.8 on Wednesday after US inflation data came in largely in line with expectations, aside from a slightly softer-than-forecast core month-on-month reading. Headline inflation accelerated to 4.2% in May, its highest level since April 2023, driven by a sharp rise in energy prices amid the conflict with Iran. Core inflation also picked up, reaching 2.9% year-over-year, the highest since September 2025. On a monthly basis, overall CPI increased 0.5%, matching forecasts, while core CPI slowed more than anticipated to 0.2%. In response, traders modestly pared back expectations for additional Federal Reserve rate hikes this year, although markets continue to fully price in a quarter-point increase in December. At the same time, tensions in the Middle East remained elevated, with the US and Iran launching new strikes. President Donald Trump warned that Iran is taking “too long” to negotiate a peace deal and will now “pay the price,” stoking doubts about the durability of the fragile ceasefire and the outlook for a lasting agreement.