Dollar Index Hits Two-Month Low as Fed Hike Expectations Plummet

The dollar index fell to a two-and-a-quarter-month low on Tuesday and is down by 0.18%. The decline in the dollar's value comes as expectations of tighter Fed policy have been dialed back following weaker-than-expected US economic news. Specifically, the chance of a Federal Reserve rate hike next month has dropped from around 75% in late July to just 31%.

The dollar is also being undercut by reduced safe-haven demand due to President Trump's shift towards favoring economic pressure over military action against Iran. Treasury Secretary Bessent announced last Friday that the administration will soon unveil unprecedented economic measures against Iran, but military conflict continues, with reports of an Iranian attack on two Abu Dhabi oil vessels in the Strait of Hormuz.

However, dollar losses are limited by some better-than-expected US economic news, including a stronger than expected August Empire manufacturing survey and a rise in the August NAHB housing market index.