Dollar Soft on Fed Repricing as Rate Hike Expectations Slashed

The US Dollar has been trading on a softer footing due to the Federal Reserve's (Fed) reduced expectations for rate hikes, says MUFG's Lee Hardman. The scaling back of rate hike expectations comes after weaker labour data and a mixed United States Producer Price Index (PPI) report.

Hardman notes that short-term US yields are declining, which is providing a headwind for the US Dollar performance this month. However, the Dollar index still holds above its 200-day moving average at around 99.200.

The Fed's decision to leave rates on hold is likely due to the slowdown in private employment and wage growth in recent months, as well as limited evidence of higher energy prices spilling over into core inflation since the US-Iran conflict started.