Dollar Index Drops Below 100 Amid Softer Inflation Readings

The US dollar index has fallen below 100 after the recent inflation and retail sales data led to reduced expectations of a rate hike in September. The index dropped to 99.67 on Friday, marking a significant decrease. This decline is attributed to the softer readings in the PCE, CPI, and PPI reports for August.

The near-term sentiment remains bearish as markets continue to reduce the possibility of a September rate hike. However, this downside may be limited, as inflation remains above the target level and markets still maintain expectations of a rate hike before the end of the year.

The demand for U.S. assets is boosted by high long-term Treasury yields, which could further weaken the US dollar if the next inflation and employment reports remove rate hike expectations. On the other hand, an upswing in inflation numbers may keep the dollar strong in the short term.