Dollar Falls as Weak Retail Sales and Consumer Sentiment Dampen Hike Prospects

The US dollar index (DXY00) fell by 0.41% due to weak retail sales and consumer sentiment reports, reducing the odds of a September Fed rate hike from 35% to 29%. The 2-year T-note yield dropped 1.3 basis points, while the 10-year T-note yield rose 1.8 basis points.

Treasury Secretary Bessent announced that the administration will introduce unprecedented economic measures against Iran, which has reduced safe-haven demand for the dollar. However, military tensions remain high, with reports of Iranian attacks on two Abu Dhabi oil vessels in the Strait of Hormuz.

The July US retail sales fell 0.6% month-over-month, weaker than market expectations, and the University of Michigan's preliminary August consumer sentiment index dropped by 4.2 points to 51.0. The markets now discount a 29% probability of a +25 basis point rate hike at the next FOMC meeting.