Dollar Weakens Amid Dwindling Rate Hike Bets

The US dollar weakened further on Tuesday as expectations of near-term rate hikes dwindled, but concerns about an escalation in the Middle East war sent shockwaves through bond markets.

Traders scaled back bets for a rate hike by the Federal Reserve, with a 35% chance now expected at the September meeting, down from 52.2% a week ago, according to the CME FedWatch tool.

Economists polled by Reuters in recent days expect the Fed to keep its interest rates unchanged next month and through year-end, a view they've held for several months.

However, analysts remain cautious about inflation, with long-dated bond yields scaling multi-decade peaks due to supply shocks and conflicts like the one in the Strait of Hormuz.