Dollar Slips as Fed Rate Hike Bets Cool Amid Rising Oil Prices

The US dollar fell against a basket of major currencies on Tuesday as traders reduced their expectations for further Federal Reserve interest rate hikes, but losses were capped by rising oil prices.

Market sentiment shifted after softer-than-expected US economic data suggested the Fed may be closer to the end of its tightening cycle. According to CME Group's FedWatch tool, the probability of a 25-basis-point rate hike at the next policy meeting fell to 65% as of Tuesday, down from 78% a week earlier.

The services sector, which accounts for more than two-thirds of US economic activity, showed a slowdown in July, with the Institute for Supply Management's (ISM) services index dropping to 52.7 from 53.9 in June.

Chicago Fed President Austan Goolsbee said that 'the cumulative tightening we've done so far is having the intended effect on demand', hinting at a possible pause in rate hikes.