(fxcue news) - The U.S. dollar shed ground against its major counterparts on Tuesday after data showing a smaller than expected increase in the nation's producer prices in the month of July raised expectations that the Federal Reserve will cut interest rates by 50 basis points in September. The Labor Department's data said the producer price index for final demand inched up by 0.1% in July after rising by 0.2% in June. The uptick by producer prices matched economist estimates. Meanwhile, the report said the annual rate of producer price growth slowed to 2.2% in July from an upwardly revised 2.7% in June. Economists had expected the annual rate of producer price growth to decelerate to 2.3% from the 2.6% originally reported for the previous month. The notable slowdown by the annual rate of price growth has increased confidence the Federal Reserve will lower interest rates at its monetary policy meeting next month. CME Group's FedWatch Tool is currently indicating a 54.5% chance the Fed will cut rates by 50 basis points and a 45.5% chance of a 25 basis point rate cut. Meanwhile, small business sentiment in the U.S. strengthened to a two-and-a-half-year high in July though inflation remained the top concern for businesses, the monthly survey results from the National Federation of Independent Business (NFIB) showed. The NFIB Small Business Optimism Index rose for the fourth month in a row in July, up 2.2 points to 93.7 from 91.5 in June. Economists had expected the reading to remain unchanged. The dollar index dropped to 102.55, losing nearly 0.6% on rising rate cut bets. Against the Euro, the dollar weakened to 1.0999 from 1.0933. The dollar shed about 0.8% against Pound Sterling, easing to 1.2867 a unit of the British currency. Against the Japanese currency, the dollar eased to 146.86 yen from the previous close of 147.20 yen. The dollar weakened to 0.6635 against the Aussie. The Swiss franc gained marginally at 0.8650 a unit of the greenback, while the Loonie firmed to 1.3709 against the dollar.