US Dollar Index attempts to reclaim 104.60 as the probability of aggressive Fed direction diminishes

The US dollar index (DXY) had a sharp decline on Wednesday following a decline in the US Consumer Price Index (CPI). The DXY tumbled like a house of cards as a dramatic slowdown in price pressures reduced the likelihood of a massive rate hike by the Federal Reserve (Fed) in September. A breach to the downside of the consolidation created between 106.00 and 106.80 pushed the asset down to 104.64. The market has seen a setback, but the decline will persist.

Plain-Vanilla CPI falls 60 bps

The annual rate of inflation in the United States was 8.5%, which was lower than both the forecast and the previous report of 8.7% and 9.1%. A significant tiredness signal was sent to market players in July by a notable annual decline in the inflation rate precipitated by a precipitous decline in oil prices. The Federal Reserve (Fed) will undoubtedly announce additional rate hikes; but, the Fed's long-term hawkish outlook will suffer a significant setback.

Optimistic market sentiment will persist for some time.

Fed policymakers breathe a sigh of relief after implementing a series of policy tightening measures, such as increasing interest rates and ending the bond-buying program. Investors have been anticipating a month with positive job data and a major decline in price pressures in order to inject cash into risk-perceived assets. In the future, the risk-taking drive will persist for a little longer duration.