Dollar Dives on Dimmed Fed Hike Prospects and BoJ Rate Expectations

The US Dollar (USD) is under pressure on Friday, trading down 0.47% against a basket of six major currencies. The US Dollar Index (DXY) currently stands at 99.50. The decline in USD value comes as traders see only a 30% chance of a rate hike at the September Federal Reserve (Fed) meeting, down from more than 50% last week.

The Fed's interest-rate hike prospects have been dimmed by softer inflation data, including the July Consumer Price Index (CPI) and Producer Price Index (PPI) reports. The CPI report showed easing inflationary pressure, with spillovers from elevated Oil prices appearing limited so far.

Adding to the softer data, US Retail Sales fell by 0.6% in July, missing expectations for a 0.1% increase and reversing the previous month's 0.2% gain. Strategists at Rabobank note that policymakers are increasingly aware of the need for monetary policy support to manage exchange rates.

In contrast, expectations are growing that the Bank of Japan (BoJ) will raise interest rates next month. Reuters reported on Friday that the BoJ could raise rates as soon as September and is considering a faster pace of tightening thereafter.