With inflation easing and the labor market cooling, the risks of keeping policy too tight are mounting. The CME Group now puts the implied odds of a September rate cut at 92.2 percent, reflecting growing expectations in the fed funds futures market that the Fed will respond to the softer data.

The dollar fell across the board on Tuesday after data showed that U.S. consumer prices increased moderately in July, leaving intact the case for a Federal Reserve interest-rate cut next month.

Gas prices plummeted last year and that's kept inflation lower than expected but a different number, core inflation, which excludes gas and groceries rose 3% and economists say it's increasing sharply.

The Labor Department’s consumer price index for July showed that the annual pace of inflation remained at 2.7 percent from July 2024. That’s the same as the annual rise reported in June and above April’s post-pandemic low of 2.3 percent, though it was just under economists’ expectations.