US Dollar Index loses ground to near 98.50, US PPI data in spotlight

• The US Dollar Index weakens to around 98.55 in Wednesday's Asian session. 
• Trump said drug tariffs will probably be imposed by August 1. 
• Investors trimmed rate cut bets by the Fed after hot US inflation data. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, loses traction to 98.55 during the Asian trading hours on Wednesday. Investors brace for the release of the US Producer Price Index (PPI), Fed Beige Book and Industrial Production, which are due later on Wednesday. 

The US Dollar edges lower, snapping the four-day winning streak as markets continue to assess the impact of US President Donald Trump's tariff policy while awaiting new developments. Trump said late Tuesday that he was likely to impose tariffs on pharmaceuticals as soon as the end of the month and that levies on semiconductors could come soon as well. Nonetheless, any signs of renewed trade tensions between the US and its major trading partners could undermine the USD against its rivals in the near term. 

Federal Reserve (Fed) Bank of Boston President Susan Collins said on Tuesday that it is challenging to set monetary policy right now amid uncertainty, adding that it's time for the US central bank to be 'actively patient' with monetary policy. Meanwhile, Dallas Fed President Lorie Logan stated that the Fed will probably need to leave interest rates where they are for a while longer to ensure inflation stays low in the face of upward pressure from the US Trump administration's tariffs.

Data released by the US Bureau of Labor Statistics (BLS) on Tuesday showed that the US Consumer Price Index (CPI) rose by 2.7% YoY in June, up from 2.4% in May.  This figure came in line with the market forecast. The core CPI, excluding fluctuating food and energy costs, increased by 2.9% in the same month versus 2.8% prior. On a monthly basis, the headline CPI and core CPI rose by 0.3% and 0.2%, respectively.

The hot US CPI inflation data and the cautious stance of the Fed lift the Greenback as investors pared back expectations of Fed interest rate cuts this year. Traders have priced in nearly 43 basis points (bps) worth of reductions by December, down from above 50 bps at the start of the week.