US Dollar Weakens on Hot Inflation, Rising Jobless Claims

The U.S. dollar has weakened against major currencies such as the euro and yen amid mixed economic data suggesting an impending Federal Reserve rate cut. Modestly hotter inflation data for August showed the Consumer Price Index rising 2.9% year-on-year, the largest increase since January, yet this was overshadowed by a significant rise in initial jobless claims to the highest level in nearly four years. This labor market weakness has increased expectations that the Fed will proceed with rate cuts, with Fitch projecting two 25 basis point cuts later this year and more in 2026, while the ECB maintained its benchmark interest rate at 2%, signaling steady Eurozone monetary policy. The dollar index declined slightly, reflecting market positioning ahead of the Fed's meeting, with investors pricing in a shallower path of easing than previously anticipated. ECB President Christine Lagarde highlighted reduced trade uncertainties but noted downside risks to economic growth remain. Overall, the economic data and central bank statements point to a cautious outlook with the focus on supporting growth through monetary easing in the U.S. while the euro remains supported by stable policy.