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A softer inflation report could weigh on the U.S. dollar and boost inverse-dollar ETFs.
Falling dollar values could support gold, commodities and emerging-market ETFs.
Higher Treasury yields may limit the dollar's downside despite cooling Fed-rate hike bets.
The annual inflation rate in the United States slowed for a second successive month to 3.4% in July 2026, from 3.5% in June, in line with expectations. The impact of the energy shock caused by the war with Iran continued to ease. On a monthly basis, the CPI rose 0.1% as expected, rebounding from a 0.4% decline in June.
More importantly, core CPI, which excludes volatile food and energy prices, increased 0.2% month over month (following a flat reading in June) and 2.5% year over year, down from 2.6% in June, per Trading Economics.
Cooling Inflation Cools Fed Rate-Hike Bets
Expectations for another Federal Reserve rate hike have cooled following the latest inflation data. The chances of the Fed keeping interest rates unchanged at its September meeting have now risen to 66%, up from 45% a week ago, per CME FedWatchTool (at the time of writing).
The benign inflation report came shortly after July's disappointing jobs data, which showed an unexpected loss of 23,000 nonfarm jobs. The combination of softer inflation and a weakening labor market have reduced the urgency for the Fed to raise interest rates at its September meeting, although another rate hike later this year remains possible if inflation proves persistent.
Tough Time Ahead for the U.S. Dollar
J.P. Morgan Asset Management’s Tai Hui said that with the short end of the yield curve expected to come down, the U.S. dollar could face some downward pressure. The strategist believes that the Fed is now in a comfortable position to hold rates until the end of the year. He expects a 2-3% downside on the U.S. dollar is expected, as quoted on CNBC.
Note that U.S. dollar fund Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , which offers direct exposure to the U.S. dollar, has slumped about 1.1% over the past one month (as of Aug. 12, 2026).
Other Factors Playing Against Dollar Strength
BRICS economies have been taking an important step toward de-dollarization. The greenback’s share in global reserves declined lately. The balance of greenbacks in international reserves has been declining lately.
Tap Inverse Dollar ETF
Needless to say, if the dollar is falling, a short position on the currency would result in positive returns. Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) should thus be tapped.
Focus on Real Assets
The decline in the U.S. dollar is good for raw materials and commodities, as these are priced in the U.S. dollar. SPDR Gold Shares (GLD - Free Report) has gained about 4% over the past week. The broader commodities ETF, Invesco DB Commodity Index Tracking Fund (DBC - Free Report) , has also risen about 4.2% over the past week (as of Aug. 12, 2026).
Opportunities in Emerging Markets
De-dollarization can create opportunities for investors in emerging markets, as countries that were previously reliant on the U.S. dollar may develop stronger local currencies and financial systems. This could lead to increased investment in these countries. Vanguard Emerging Markets Stock Index Fund ETF (VWO - Free Report) has added about 2.8% over the past week.
Time for Large Caps?
Since large-cap stocks have greater foreign exposure, the weakening dollar is positive for this capitalization. SPDR S&P 500 ETF Trust (SPY - Free Report) should thus be closely watched for gains.
Any Caveat?
Generally, rising U.S. Treasury yields strengthen the U.S. dollar because higher yields attract foreign investment seeking better returns. The latest auction yield on 10-year U.S. Treasury notes, the global benchmark for the bond market, touched its highest level since the 2007 global financial crisis on inflation concerns.
Investment house Barclays said long-term US Treasury yields may remain near multi-decade highs, Walter Bloomberg reported on August 11, as quoted on Bloomingbit. Hence, the U.S. dollar may not slide too low, thanks to the support from higher U.S. treasury yields.
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U.S. Dollar to Slip Ahead? ETFs in Focus
Key Takeaways
The annual inflation rate in the United States slowed for a second successive month to 3.4% in July 2026, from 3.5% in June, in line with expectations. The impact of the energy shock caused by the war with Iran continued to ease. On a monthly basis, the CPI rose 0.1% as expected, rebounding from a 0.4% decline in June.
More importantly, core CPI, which excludes volatile food and energy prices, increased 0.2% month over month (following a flat reading in June) and 2.5% year over year, down from 2.6% in June, per Trading Economics.
Cooling Inflation Cools Fed Rate-Hike Bets
Expectations for another Federal Reserve rate hike have cooled following the latest inflation data. The chances of the Fed keeping interest rates unchanged at its September meeting have now risen to 66%, up from 45% a week ago, per CME FedWatchTool (at the time of writing).
The benign inflation report came shortly after July's disappointing jobs data, which showed an unexpected loss of 23,000 nonfarm jobs. The combination of softer inflation and a weakening labor market have reduced the urgency for the Fed to raise interest rates at its September meeting, although another rate hike later this year remains possible if inflation proves persistent.
Tough Time Ahead for the U.S. Dollar
J.P. Morgan Asset Management’s Tai Hui said that with the short end of the yield curve expected to come down, the U.S. dollar could face some downward pressure. The strategist believes that the Fed is now in a comfortable position to hold rates until the end of the year. He expects a 2-3% downside on the U.S. dollar is expected, as quoted on CNBC.
Note that U.S. dollar fund Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) , which offers direct exposure to the U.S. dollar, has slumped about 1.1% over the past one month (as of Aug. 12, 2026).
Other Factors Playing Against Dollar Strength
BRICS economies have been taking an important step toward de-dollarization. The greenback’s share in global reserves declined lately. The balance of greenbacks in international reserves has been declining lately.
Tap Inverse Dollar ETF
Needless to say, if the dollar is falling, a short position on the currency would result in positive returns. Invesco DB US Dollar Index Bearish Fund (UDN - Free Report) should thus be tapped.
Focus on Real Assets
The decline in the U.S. dollar is good for raw materials and commodities, as these are priced in the U.S. dollar. SPDR Gold Shares (GLD - Free Report) has gained about 4% over the past week. The broader commodities ETF, Invesco DB Commodity Index Tracking Fund (DBC - Free Report) , has also risen about 4.2% over the past week (as of Aug. 12, 2026).
Opportunities in Emerging Markets
De-dollarization can create opportunities for investors in emerging markets, as countries that were previously reliant on the U.S. dollar may develop stronger local currencies and financial systems. This could lead to increased investment in these countries. Vanguard Emerging Markets Stock Index Fund ETF (VWO - Free Report) has added about 2.8% over the past week.
Time for Large Caps?
Since large-cap stocks have greater foreign exposure, the weakening dollar is positive for this capitalization. SPDR S&P 500 ETF Trust (SPY - Free Report) should thus be closely watched for gains.
Any Caveat?
Generally, rising U.S. Treasury yields strengthen the U.S. dollar because higher yields attract foreign investment seeking better returns. The latest auction yield on 10-year U.S. Treasury notes, the global benchmark for the bond market, touched its highest level since the 2007 global financial crisis on inflation concerns.
Investment house Barclays said long-term US Treasury yields may remain near multi-decade highs, Walter Bloomberg reported on August 11, as quoted on Bloomingbit. Hence, the U.S. dollar may not slide too low, thanks to the support from higher U.S. treasury yields.