Dollar Softens on Dovish Fed Tone, Short-term Downside Risks Ahead

US Dollar prices softened after Federal Reserve official Christopher Waller made dovish comments, which pushed US yields and the dollar lower while supporting equities and high-yielding currencies.

The remarks from Waller shifted the burden of proof towards the need for a hot August inflation print to justify a rate hike, otherwise he would vote for a hold.

Despite the prospect of a Fed hike, investors are concluding that any tightening cycle will be very modest and not enough to derail a relatively benign investment backdrop.

This presents a mildly negative backdrop for the dollar in the short term, with ING's Chris Turner expecting DXY to face resistance and drift slightly lower near term.