Dollar Steadies as Fed Rate Hike Odds Fizzle Amid Geopolitical Tensions
The US Dollar Index (DXY) has stabilized despite fading expectations of an interest rate hike by the Federal Reserve. The DXY measures the value of the US Dollar against six major currencies and has been trading around 99.60 during Asian hours on Tuesday. The Greenback is receiving support from safe-haven demand, which is attributed to ongoing geopolitical tensions between the United States and Iran.
US President Donald Trump announced he has no interest in renewing the expiring agreement with Iran, citing the naval blockade of Iranian ports as evidence of Washington's leverage. This move has heightened concerns about security complexities and obstructionist behavior, according to Iranian Foreign Ministry spokesman Esmail Baghaei.
The Federal Reserve's hawkish sentiment has waned due to a recent decline in July US Nonfarm Payrolls and modest consumer price inflation data. Expectations for an interest rate increase next month have dropped to 35%, down from 47% a month earlier, according to the CME FedWatch Tool.
Strategists at Scotiabank note that the USD has been softening broadly and that the 25bps of tightening priced in by year-end is too much. They also highlight clear signs of market angst about US fiscal dynamics, reflected in the steepening US yield curve.