On Wednesday, August 12th, following the release of the US July Consumer Price Index (CPI), the foreign exchange and interest rate markets quickly reassessed the inflation path. The latest data showed that the overall CPI rose 3.4% year-on-year in July, lower than June's 3.5%; and rose 0.1% month-on-month, in line with market expectations. The core CPI, excluding food and energy, rose 2.5% year-on-year, lower than the previous value of 2.6%, and rose 0.2% month-on-month. Official data also showed that energy prices fell 1.5% month-on-month in July, with gasoline prices falling 2.9%, becoming a significant source of the overall inflation slowdown. While the overall inflation rate fell from 3.5% year-on-year to 3.4% in July, seemingly a continuous improvement, a closer analysis reveals that the biggest cooling force this month came from energy, rather than a simultaneous disappearance of broader price pressures. The energy index fell 1.5% month-on-month in July, with gasoline prices falling 2.9%. However, from a year-on-year perspective, energy prices still rose 14.7%, and gasoline prices rose 24.6% year-on-year. This combination is crucial because it means that short-term month-on-month data is significantly affected by the previous decline in energy prices, but energy price levels are still significantly higher than the same period last year. Therefore, for the interest rate market, a 3.4% overall inflation rate cannot be directly equated with a stable low-inflation environment. What truly warrants attention is whether energy prices will continue to drag down inflation in the coming months. If energy prices resume their upward trend, the mathematical structure of overall inflation could change rapidly. Food prices rose 0.1% month-on-month in July, with household food prices falling 0.1% and dining out prices rising 0.3%. Vegetable and fruit prices fell 0.1% month-on-month, with lettuce prices falling by a significant 16.4%. These items can suppress short-term overall data, but some food prices are highly susceptible to supply and demand fluctuations, limiting their reference value for judging medium-term inflation trends. The core consumer price index fell from 2.6% year-on-year to 2.5%, significantly closer to the price stability range corresponding to the Fed's long-term inflation target compared to this spring. However, the core month-on-month increase rebounded to 0.2% in July, indicating that the flat month-on-month core price in June did not form a continuous trend. Further breakdown reveals more information. Housing costs rose 0.1% month-on-month in July and 3.2% year-on-year, with both landlord-equivalent rent and primary residence rent rising 0.3% month-on-month. Housing projects contributed approximately two-thirds of the overall consumer price index increase that month, indicating that core service inflation still has some inertia. Meanwhile, airfares rose 2.2% month-on-month, medical prices rose 0.4%, used car prices rose 0.4%, and clothing prices rose 0.1%. Non-food and energy core commodities, after declining 0.1% in June, rebounded to rise 0.2% in July; prices for services other than energy services also rose 0.2%. This is the most noteworthy structural detail for traders in this report: overall year-on-year data continued to decline, but core commodities and some services simultaneously returned to positive growth. In other words, this data represents a combination of moderate overall growth and not entirely loose internally, with a significantly weaker policy implication than conclusions drawn from observing the 3.4% and 2.5% year-on-year figures alone. At the end of July, the Federal Reserve maintained the target range for the federal funds rate at 3.50% to 3.75%, a decision passed with 9 votes in favor and 3 against. Three members at the time favored a 25 basis point rate hike. The Fed also explicitly stated that inflation remained high relative to the 2% target and mentioned price pressures from supply shocks such as energy. Therefore, while the July Consumer Price Index (CPI) did not bring any new upward surprises, it was also insufficient to resolve policy disagreements on its own. Before the data release, the interest rate market reflected a probability of approximately 46% for a September rate hike. More importantly, key data such as August employment and the August CPI will be available before the September meeting, which limits the weight of a single month's inflation in the final policy decision. From the perspective of the policy reaction function, two issues need to be distinguished. The first is whether overall inflation continues to decline, and the second is whether the decline in core inflation is based on a sustainable slowdown in service prices. The former was somewhat validated in July, while the evidence for the latter remains mixed. This is also an important reason why interest rate expectations did not undergo extreme adjustments after the data release. After the data release, the US dollar index fluctuated significantly in the short term. The 5-minute chart shows that the index briefly dipped during the data window, while the US dollar index subsequently traded around 99.7, with a cumulative change of approximately -1.1% over the past month. This indicates that the market did not simply interpret this data as a one-way policy signal, but rather as a repricing of the relationship between energy inflation, core price stickiness, and the Fed's decision in September. Therefore, the current US dollar index does not reflect a simple narrative of "declining inflation," but rather the result of the combined effects of short-term interest rates, real interest rates, energy prices, and subsequent employment data.