Dollar falls to lowest since May after Waller’s inflation comments signal Fed patience

The US dollar dropped to levels not seen since May after Federal Reserve Governor Christopher Waller pointed to meaningful progress on inflation, hinting that the central bank might hold rates steady at its mid-September meeting. The yen, meanwhile, surged against its major counterparts, a one-two punch that rattled currency markets on September 3.

Waller’s comments landed with particular weight because they diverge from the more hawkish posture recently adopted by Fed Chair Kevin Warsh.

The inflation numbers behind Waller’s shift

Three-month core inflation, as measured by the Personal Consumption Expenditures index, declined from 4.76% in February to 3.05% in July. That’s still above the Fed’s 2% target, but the trajectory is clearly moving in the right direction.

Year-over-year core PCE came in at 3.3% for July. Both headline and core PCE rose just 0.2% in July, suggesting that price momentum is losing steam.

Waller framed his position as fundamentally data-dependent, saying policymakers should “give disinflation a chance.” His readiness to support a steady policy rate is contingent on August inflation data coming in favorably. If the numbers cooperate, the September FOMC meeting could pass without a rate change.

Dollar weakness runs deeper than one speech

The greenback has been under pressure for much of 2026, weighed down by a cocktail of tariff-related uncertainty, fiscal concerns, and shifting expectations about the Fed’s policy trajectory.

The yen’s surge reflects the interest rate differential between the Bank of Japan and the Fed. Any narrowing of that gap, real or anticipated, gives the yen room to recover, and it posted substantial gains against its major counterparts in the wake of Waller’s comments.

What a patient Fed means for risk assets

The tension between Waller and Warsh adds a layer of uncertainty heading into the September meeting. If Waller’s data-dependent patience becomes the consensus view, it could provide a supportive backdrop for crypto markets through the end of 2026.

The key variable to watch is the August inflation print. Waller has essentially drawn a line in the sand: if the data confirms that disinflation is continuing, the case for holding rates steady becomes nearly airtight. If the numbers surprise to the upside, Warsh’s more aggressive posture could carry the day.

Fiscal concerns surrounding US debt levels add another dimension to the dollar’s vulnerability. Even if inflation cooperates and the Fed holds steady, structural worries about the trajectory of government spending could keep the greenback under pressure for longer than a single FOMC meeting cycle.