Why Dollar and Brent are both stalling at the same moment, and what each market needs to move again
Dollar Softens Again as PPI Strengthens Fed Hold Case
Dollar attempted a recovery earlier Thursday but slipped again in early US trading after July PPI undershot expectations, adding to the case for the Fed to leave rates unchanged in September. Headline producer prices moved from -0.1% to 0.0% m/m, below the 0.2% expected, while annual PPI slowed sharply from 5.5% to 4.7%, undershooting the 4.9% consensus.
Coming one day after an in-line CPI report showed core inflation returning from 2.6% to 2.5%, back at its pre-Iran-war level, July’s price data collectively suggest the inflationary effects of the first oil shock have largely washed through. Fed funds futures now price close to a 70% probability of a September hold, up from around 45% a week ago.
That is a substantial shift in rate expectations. Yet the Dollar’s response remains surprisingly restrained.
July PPI at a Glance
- Headline PPI: -0.1% to 0.0% m/m, below the 0.2% expected.
- Annual PPI: slowed from 5.5% to 4.7% y/y, below the 4.9% consensus.
- September hold probability: near 70%, up from around 45% a week ago.
Fed Hold Is Becoming Consensus, but Dollar Bears Lack Momentum
Dollar is the second-weakest major currency on the day, behind Kiwi, but selling has failed to develop into a broad directional move. Swiss Franc is strongest, followed by Euro and Yen, while Sterling and Canadian Dollar sit in the middle. Aussie is third weakest.
Outside several Kiwi crosses, however, most major pairs remain trapped inside Wednesday’s ranges. That leaves the overall FX market better described as indecisive than decisively Dollar-bearish.
Part of the explanation is that much of the Fed repricing has already happened. July’s surprise payroll contraction started the process, CPI removed evidence of renewed core inflation, and PPI has now reinforced the same conclusion. Thursday’s data therefore strengthen an increasingly established September-hold narrative rather than introducing an entirely new one.
Fed hold is becoming consensus, but Dollar bears are struggling to extract another trend move from it.
July Inflation Gives Fed More Reason to Wait
Both CPI and PPI reports largely describe the price environment before the latest US-Iran re-escalation and renewed Brent surge. The Fed therefore knows the first oil shock has largely passed through inflation data, but it still has to determine whether a second shock will do the same.
That reinforces the hold-and-wait position ahead of the September 15–16 meeting. August employment data will determine whether July’s labor-market deterioration persists, while August inflation reports will begin showing whether higher energy prices are again spilling into broader costs.
Brent’s Six-Session Rally Hits $90 Wall
The oil market is facing its own waiting game.
Brent has rallied roughly 12% over six sessions, but the advance has stalled around the psychological $90 level. WTI has also eased, as geopolitical news flow stops providing fresh reasons to extend the risk premium.
US-Iran talks remain deadlocked, but the deadlock itself is no longer new information. Pakistan’s defense minister suggesting earlier this week that parties could be “close to some sort of arrangement” provided one mildly de-escalatory signal, but there has been no breakthrough in either direction.
Current price therefore appears to reflect the existing standoff rather than expectation of an imminent new escalation. Continued hostile rhetoric or another confirmation that negotiations are stuck may no longer be enough to drive Brent decisively through $90. A new escalation would likely be needed to expand the geopolitical premium further.
Without Fresh Escalation, Fundamentals Start to Matter Again
Oil’s underlying fundamental picture is also becoming less supportive.
US crude inventories jumped 9.1 million barrels in this week’s data, the biggest weekly increase since February. That bearish signal has so far been overshadowed by Middle East risk, but it becomes relevant if the geopolitical backdrop stops deteriorating.
That means “no new news” does not necessarily imply Brent simply settles into a plateau around $90. If the US-Iran standoff remains static and the risk premium stops expanding, the bearish inventory backdrop could begin pulling prices back through $87–88. A deeper grind toward $85–86 would then become increasingly plausible.
Oil’s Asymmetric Setup
- To sustain a break above $90: fresh escalation is probably needed.
- Absent escalation: bearish inventories (+9.1 million barrels, biggest weekly build since February) leave room for fundamentals to pull Brent back toward $87–88, and potentially $85–86.
Two Markets Waiting for the Next Catalyst
Dollar and oil are arriving at similar points from opposite directions.
Fed markets have received enough benign July inflation data to make a September hold increasingly likely, but further Dollar downside now requires another catalyst. Oil has received enough geopolitical tension to lift Brent toward $90, but further upside increasingly requires escalation beyond the current stalemate.
That leaves both markets waiting. For Dollar, the next decisive information comes from August labor and inflation data. For Brent, it comes from whether the US-Iran standoff actually worsens or simply stays unresolved.
Fed has more reason to wait. Brent, for now, is running out of reasons to rally.
Related Coverage
Fed & Rates Deep Dives
- Read the full PPI breakdown showing falling energy and food prices drove much of July’s softness: US PPI Slows to 4.7% Y/Y as July Prices Come in Flat.
- See why rising initial jobless claims add another mildly soft labor signal even as the four-week average holds steady: US Jobless Claims Rise to 209K, but Continuing Claims Ease.
Currency Divergence Deep Dives
- Read why NZD fell despite a hawkish RBNZ Survey, as one-year inflation expectations plunged from 3.41% to 2.60%: RBNZ Survey Was Hawkish. So Why Did NZD Fall?.
- See why EUR/USD is struggling to rally even with a favorable macro backdrop and September ECB hike odds above 90%: Dollar Is Giving EUR/USD Every Chance to Rally. So What’s Holding Euro Back?.
Global Data Deep Dives
- Read why weak capital and intermediate goods offset stronger consumer production in June: Eurozone Industrial Production Stalls in June as Capital Goods Weigh.
- See why stronger June growth suggests the UK economy entered Q3 with more momentum than feared: UK GDP Beats June Forecast with 0.4% M/M Growth as Services Keep Economy Moving.
- Read why Yen-based import inflation near 30% is still limiting relief for the BoJ despite cooling producer prices: Japan PPI Cools Slightly to 7.2% Y/Y, but Weak Yen Keeps Import Inflation Near 30%.
Central Bank Commentary
- See why RBA’s Kent says tightening is working, but the Board isn’t yet ready to call the cycle finished: RBA’s Kent Says Tightening Is Working, but Policy Restraint Remains Hard to Gauge.
Frequently Asked Questions
Q: Fed hold odds jumped to near 70%. Why isn’t the Dollar selling off harder?
A: Because most of the repricing that drove the shift had already happened before Thursday. July’s surprise payroll contraction started the process, CPI removed evidence of renewed core inflation, and PPI simply reinforced a conclusion markets had already reached. With Dollar still trapped inside Wednesday’s ranges against most majors outside a few Kiwi crosses, the FX market looks indecisive rather than decisively Dollar-bearish.
Q: Why did Brent’s rally stall right at $90 instead of breaking through?
A: Because the US-Iran deadlock stopped being new information. The rally’s roughly 12% six-session advance was built on genuine escalation headlines, but continued stalemate, even hostile rhetoric or another confirmation that talks are stuck, no longer adds fresh geopolitical premium. A break decisively above $90 likely requires actual new escalation, not just continuation of the current standoff.
Q: What would move Dollar and Brent from here?
A: For Dollar, the next decisive catalyst is August labor and inflation data, due ahead of the September 15–16 FOMC meeting. For Brent, it’s whether the US-Iran standoff actually worsens rather than just persisting. Absent a real escalation, oil’s bearish backdrop, including a 9.1 million barrel inventory build, the biggest since February, leaves room for prices to drift back toward $87–88 or lower.
Key Takeaways
- PPI reinforced the Fed hold case: September hold odds rose to near 70%, up from around 45% a week ago, after annual PPI slowed from 5.5% to 4.7%.
- Dollar’s decline lacks momentum: Much of the Fed repricing already happened via July’s payroll contraction and CPI, so PPI reinforced rather than created the move, and most pairs remain trapped in Wednesday’s ranges.
- Brent’s rally stalled because the deadlock is no longer new information: The roughly 12% six-session advance hit a wall near $90 as continued US-Iran stalemate stopped adding fresh geopolitical premium.
- US crude inventories jumped 9.1 million barrels, the biggest weekly build since February: That bearish signal is currently overshadowed by geopolitical risk but becomes relevant if tensions stop escalating.
- Oil’s setup is asymmetric: A break above $90 likely needs fresh escalation, while the absence of escalation leaves room for fundamentals to pull Brent toward $87–88, and potentially $85–86.
- Dollar and Brent are both waiting on different catalysts: August labor and inflation data for Dollar, an actual worsening rather than continuation of the US-Iran standoff for oil.
What to Watch Next
August employment and inflation data will be the next major test for Dollar ahead of the September 15–16 FOMC meeting. For oil, watch whether the US-Iran standoff shows genuine signs of escalation or de-escalation, rather than simply persisting, since continued deadlock alone may no longer be enough to move Brent through $90.
