Dollar Slumps as Rate Hike Bets Faded on Softer Economic Data

The US dollar fell to its lowest level in more than two months on Monday as traders reduced bets on further rate hikes by the Federal Reserve. This comes after a string of weaker-than-expected economic data, including a surprise drop in retail sales and benign inflation.

As a result, the euro hit a two-month high at around $1.1614, while the yen strengthened 0.2% to around 159.04 per dollar. The dollar index, which measures the dollar's value against a basket of other major currencies, fell to its lowest since early June.

The Japanese economy grew at a slower-than-expected pace in April to June, due to lackluster household spending and business investment. This has led markets to conclude that the urgency for further hikes has been diminished, with traders expecting only a 30.8% chance of a rate increase at the Fed's September meeting.

However, economists are cautious not to rule out a potential rate hike before the end of the year, citing quirks in the data and uncertainty surrounding the Fed's policy rates. The lack of fresh guidance from the Fed has left investors maneuvering an increasingly murky rate environment.