US dollar weakens on softer CPI, but Warsh keeps rate hikes on the tableFocus shifts to today’s PPI report after Middle East hostilities persistUS equities ignore higher oil prices, benefit from strong earnings and lower Fed hike betsAussie maintains gains despite weak Chinese data; loonie rally threatened by a dovish BoCDollar Slips on Softer CPIThe US dollar remains mostly on the back foot at the start of the European session after the strong moves posted yesterday. The softer-than-expected CPI report, which caught investors off-guard despite the evident downside risk following the 20% drop in oil prices in June, triggered sizeable moves in the FX space, with risk-on currencies like the Aussie and the Kiwi recording the strongest gains.Fed Chair Warsh somewhat tempered the post-CPI reaction in the FX market, by insisting that the “Fed has no tolerance for persistently elevated inflation”, highlighting that "mission accomplished is not my view after today’s data” and crucially stating that that he is “doubling down on the 2% inflation target” in a clear attempt to influence market expectations and keep Fed rate hikes in the mix.His intention was understandable since yesterday’s inflation report proved more market-moving than Fedspeak has been since the mid-June Fed meeting. Chances of a July rate hike were halved yesterday to less than 10%, while total tightening by year-end dropped by 10bps to just 32bps, with the first 25bps rate hike currently fully priced in for December, a stark change from last week. Notably, today’s data calendar includes the June PPI report and the NY Empire State manufacturing index, both of which could offer valuable insights into price pressures and manufacturing trends.Interestingly, investors might be potentially underestimating the impact of the current barrage of US-Iran hostilities. For the fourth consecutive night, US forces targeted Iranian targets along the Strait of Hormuz, aiming to weaken Iranian capabilities to react to the US naval blockade.Notably, though, President Trump has taken back the 20% passage fee advertised on Tuesday while also highlighting that US forces are deliberately avoiding targeting oil installations. There is a window for fresh negotiations, but Trump is probably uninterested in another ceasefire given the current US equity market performance.US Equities Ignore Warsh and Oil RallyDespite spot WTI oil prices climbing to a one-month high, and December WTI oil futures rising to $75 after dropping to $67 in early July, US equities seem undisturbed by the fresh escalation in the Middle East. Equity investors are instead focusing on the less hawkish Fed stance and the current earnings round, which started on a positive tone as the initial US banks’ earnings beat expectations. Following the solid ASML (NASDAQ:ASML) earnings, today’s calendar includes additional reports from US banking institutions.Meanwhile, both Japanese and Korean stock markets posted solid gains earlier today, supporting the current muted risk-on sentiment, which is not present in European stock indices. The rise in oil and gas prices has a disproportionate impact on the euro area economy, especially as fresh Ukrainian attacks on Russian oil installations are also contributing to the oil price surge, thus keeping the muted chances of an ECB rate hike next week supported. However, compared to the Fed, total tightening until year-end remains stable at 44bps, with September considered the pivotal meeting.Stable Dollar/Yen, Aussie Ignores Weak Chinese Data And Loonie Prepares BoCThe dollar weakness is not being exploited by yen traders, as the pair is trading north of 162 and investors are still trying to guess the next likely intervention, although a pickup in volatility might be the missing link. Meanwhile, the Aussie is adding to yesterday’s gains versus the dollar, ignoring China’s weak Q2 GDP growth and the 18% drop in property investment in the first half of 2026. All eyes are now on the late-July Politburo meeting that will set policy direction for the second half of the year.Finally, with dollar/loonie posting its strongest daily decline since April 30, the Bank of Canada meets today. Another rate pause is expected despite the resurgent oil prices. Data has improved lately but, following the soft US CPI report, a similar deceleration may take place in Canada, allowing Governor Macklem and his colleagues to stay on the sidelines once again. Any hawkish signals could further benefit the loonie.