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Dollar slides to 2.25-month low as Fed hike odds cool
Markets now price a 31% chance of a Fed rate hike at the September 15-16 FOMC meeting, down sharply from about 75% in late July.
The US dollar weakened, with the dollar index (DXY00) falling to a 2.25-month low, after weaker-than-expected US economic news led traders to dial back expectations for tighter Federal Reserve policy, according to Yahoo Finance.
The probability of a Fed rate hike next month dropped to 31%, from about 75% in late July. At the same time, safe-haven demand appeared to ease as President Trump reportedly stepped back, for now, from plans for any new major military attack on Iran, while the conflict reportedly continued with reports of an Iranian attack on two Abu Dhabi oil vessels in the Strait of Hormuz.
Stronger US data helped limit the dollar’s losses, with the August Empire manufacturing survey rising to 20.6, and the August NAHB housing market index increasing to 35. In Europe, the euro rose to a two-month high, supported by higher European government bond yields, with the 10-year German bund yield reaching 3.216%.
Currency moves extended beyond the euro, with USD/JPY down about 0.1% as Treasury yields rose. Markets also priced a 92% chance of a +25 bp ECB rate hike at its September 10 meeting, while the 10-year Japan JGB yield climbed to a 30-year high of 2.938%.
Latest closeUSD/JPY 159.31 ▼0.1%|Dollar index 99.64 ▼0.3%