Dollar Falls as Rate Hike Expectations Dropped
The US dollar index DXY fell to a 2.25-month low on Monday and finished down -0.04%. The decline was due in part to reduced expectations of tighter Fed policy, as the chance of a rate hike next month has dropped to 37% from about 75% in late July.
The dollar's weakness was also exacerbated by reduced safe-haven demand, with President Trump appearing to favor economic pressure over military action against Iran. Treasury Secretary Bessent announced plans for unprecedented economic measures against the country, but these may not have the same appeal as a strong dollar.
Despite some better-than-expected US economic news, including a rise in the Aug Empire manufacturing survey and the NAHB housing market index, the markets are discounting a 37% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16. The dollar's losses were limited by these stronger-than-expected numbers.