Dollar Tumbles Amid Rate Hike Expectations and Global Inflation Fears

The US dollar struggled to gain ground on Monday despite an increase in expectations of a Federal Reserve rate hike. The dollar's weakness was due in part to Middle East tensions, which raised concerns about broader inflationary pressures that could lead global central banks to tighten policy in sync.

Traders now estimate a 57% chance of a Fed rate hike this month, following the strong US jobs report on Friday. However, the inflation data released on Friday will be crucial in determining the next move by the Federal Reserve.

Elias Haddad, global head of markets strategy at BBH, noted that 'a hot CPI print would all but seal a September hike and underpin a firmer US dollar.' Conversely, a cooler reading could strengthen the case for a hold and leave the dollar vulnerable to a dovish Fed repricing.

The European Central Bank is expected to lift rates on Thursday, with futures implying a 75% chance of another hike to 3.0% by December. Similarly, markets are pricing in a 75% chance of a quarter-point rate hike by the Bank of Japan this month and a 60% probability of another move by December.