July 14 (Reuters) - Traders exited bets that the Federal Reserve will increase the U.S. policy rate at its July 28-29 meeting after a government report showed inflation was much softer than expected last month.

Traders now see about a 15% chance of a quarter-point interest-rate increase at the upcoming Fed meeting, versus 35% before the report. Traders still give a September hike about a 70% likelihood, though that is down from more than 90% before the report.