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LONDON — The dollar slid Tuesday after a drop in US inflation dented expectations of an interest rate hike later this month.
Oil prices had jumped sharply on fresh Iran-US strikes, with two ships struck overnight near the Strait of Hormuz.
But those gains faded during the day, with US President Donald Trump reversing course on plans to impose a 20-per cent levy on ships transiting the key waterway.
The spike in oil prices over recent days had renewed concerns about rising inflation and the need for the US Federal Reserve to hike interest rates.
But the latest data showed US consumer inflation dipped in June thanks to a drop in energy prices, which sent the dollar lower as traders saw less likelihood of a hike by the Fed later this month.
The second quarter earnings season also got under way, with JPMorgan Chase reporting a surge in net profit to $21.2 billion, which, according to Yahoo Finance, was the largest quarterly profit in US banking history.
While the inflation and earnings news were positive for stocks, the Dow shed 0.3 per cent at the opening bell, pulled down by a 23-per cent plunge in IBM shares after it warned second-quarter earnings would disappoint.
IBM released at the start of the quarter a new mainframe processor for AI applications that was well-received by clients, but CEO Arvind Krishna said that in June companies shifted spending towards servers and storage in anticipation of supply constraints and price hikes, leading the company to fall short of its targets.
While IBM suffered from the shift in spending, it was positive for the sector as a whole, with the PHLX semiconductor index rising more than three per cent.
The Dow later pushed into positive territory, buoyed by reduced expectations of an interest rate hike following the release of US consumer price index (CPI) data.
The Labour Department said that the CPI rose by 3.5 per cent on a year-on-year basis in June, down from a 4.2 per cent increase in May.
"This was the largest moderation in US price growth for six years and it drastically reduces the chance of a rate cut at this month's (Federal Reserve's monetary policy committee) meeting," said Kathleen Brooks, research director at XTB trading platform.
The drop in the inflation rate (excluding food and energy) of price growth to 2.6 per cent from 2.9 per cent in May "is adding to market confidence that price pressures in the world's largest economy could be temporary", she added.
Earlier Tuesday, the market saw a roughly 40 per cent probability of a US interest rate hike this month, but that fell to 13 per cent after the CPI data was published.
The market still narrowly sees the Fed as to hike rates at its next meeting in September.
The dollar slid against rival currencies after the inflation data was published.
International benchmark Brent North Sea crude rose as much as five per cent to trade around $87 a barrel following the fresh attacks in the Strait of Hormuz.
Oil prices later pared gains as Trump backpedalled on his proposed levy on ships in the waterway. He maintained his threat to reimpose a naval blockade on Iranian ports.
Rising oil prices hit European equities early in the day, but they recovered as crude's gains faded.
Asian stocks mostly climbed after tech firms enjoyed some reprieve from the latest bout of selling.
