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Dollar slips as Fed-hike odds fall and Treasury bond buybacks expand

CME FedWatch pricing put a September Fed hike at 32.7%, down from 47% a month earlier, even as Middle East tensions keep the dollar supported.

Reported · Written up by our desk · Major Pairs

The US Dollar Index, DXY, weakened to about 98.8 in early European trading on Thursday, falling to the lowest level since late May, FXStreet reported. Traders said the move reflects reduced expectations for a Federal Reserve rate hike despite ongoing Middle East tensions.

FXStreet cited US economic data that has weighed on rate-hike bets, including unexpected job losses in July and relatively tame inflation data released last week. According to the CME FedWatch Tool, markets now price a 32.7% probability of a Fed rate hike at the September meeting, down from 47% a month earlier.

The report also pointed to US Treasury actions and concerns about the size of national debt. Reuters, as referenced by FXStreet, said the Treasury plans to expand longer-term bond buybacks, raising the maximum size per operation from $2 billion to at least $4 billion, aimed at curbing a sharp rise in borrowing costs.

Despite the dollar's slide, FXStreet noted the US-Iran conflict and uncertainty around the Strait of Hormuz could support the dollar as a safe haven. The report added that DBS Group Research economist Chang Wei Liang said the dollar has remained range-bound as markets balance geopolitical risk with the recent bond sell-off.

Latest closeDollar index 99.64 ▼0.3%

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