The dollar lost ground against its major peers on Wednesday, helping the euro to an eight-month peak, as the US consumer price index showed inflation is subsiding, reinforcing expectations that Federal Reserve interest rate cuts are near.

US CPI rose moderately in July and the annual increase in inflation slowed to below 3% for the first time since early 2021, adding to expectations for a rate cut next month, though likely less aggressive than markets hoped for.

The report adds to the mild increase in producer prices in July in suggesting that inflation is on a downward trend. This should give the Fed room to focus more on the labour market amid growing concerns of a sharp slowdown. "Today's CPI is supportive with the Fed getting to its 2.8% PCE target, which it has for the end of this year. It supports a cut in September, but one where it's potentially more moderate than what the market had thought over the course of the last week," said Marvin Loh, senior global macro strategist, State Street.

"I think we've got a weaker dollar trend, because the dollar is still overweight when it comes to investor positioning."

The rand strengthened from R18.66/$ overnight to R18.03, its highest level in more than a month, following the release of the data on Wednesday afternoon (SA time). By early evening, it was trading at R18.06.

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