Dollar Declines as Fed Hike Expectations Fall

The US dollar has been declining against most major currencies except for the yen in recent days, as traders have reduced expectations of two interest rate hikes by the Federal Reserve before the end of this year.

This change in sentiment comes ahead of the upcoming job report on August 7, which is expected to be a key driver of market movements. The dollar's decline has been driven by lower expectations for Fed action, with around 45% of traders now expecting only one interest rate hike before the end of the year.

The recent NFP data showed a significantly weaker-than-expected result, but still not negative, which was somewhat bearish for the dollar. However, the unemployment rate unexpectedly declined in June, and while it's too early to say if this is the start of a downward trend, it suggests a robust job market.

The Fed doesn't seem under pressure to hike rates immediately, given decent but not spectacular performance from American GDP and the labour market, combined with relatively low unemployment. A significantly better result from the NFP for July would normally suggest higher inflation, potentially boosting the dollar.