Dollar Takes a Hit as Fed Aims to Avoid Tightening

The US dollar took a hit after the Federal Reserve's press conference, where investors concluded that the Fed was trying to avoid tightening monetary policy. Chair Kevin Warsh celebrated higher real yields and suggested that the markets were sending a direct message to the Fed.

However, the market reaction led to a 14bp steepening in the 2-30 year Treasury curve, with US 30-year mortgage rates pushing above 6.70%. Two US real yields fell by 7bp, undermining the dollar's strength.

The Fed's decision on whether to hike interest rates will be influenced by data releases, including core PCE inflation for June and second-quarter GDP data. A stronger-than-expected reading in these indicators could lead to a correction in the US dollar, with some analysts suggesting that it may drop back to the 100.50 area.