The US dollar is holding close to the highest levels seen since four months against other leading currencies, mostly steady after the inflation data released in the previous session failed to ignite further hopes for faster tapering of stimulus by the Fed. At the time of writing, the US dollar index DXY is trading at around 92.88.

In the previous session, the DXY gave up around 0.19% of its recent gains and slid below the $93 mark after the US CPI for July registered an increase by 0.5%. While the figure matched economists’ forecast, it was lower than June’s reading of +0.9%, easing some of the rising expectations that heating up of inflation could drive the Fed to act faster.

The Fed has repeatedly insisted that the US labor market has to show strong signs of recovery to be confident about tapering stimulus efforts. Investors widely expected the central bank to act on higher inflation as economic recovery picked up pace, although Fed officials maintained that the effects of high inflation would be transitory and would not require intervention.

July’s CPI report aligns with the Fed’s outlook and releases some of the pressure building up on the US central bank to start tightening the monetary policy and withdrawing monetary stimulus initiatives. This sentiment drove some weakness in the US dollar, although it could be temporary as long as the labor market shows strong recovery – a development that would continue to support expectations for a hawkish tilt soon and support the reserve currency.

Meanwhile, the greenback got some support and saw losses limited in the previous session on the back of comments from Kansas Fed President Esther George. George stated that the current uptick in inflation and labor market conditions should be adequate to convince the Fed to start tapering asset purchases, which the markets took as a strong sign that the process may begin soon.