Dollar Weakens as Euro Gains Strength Amid Strong Inflation Data

The US dollar is weakening for a fifth straight session, hitting its lowest levels since mid-June. The decline in the geopolitical risk premium after President Trump called off planned strikes on Middle Eastern targets is a major contributor to this trend.

The Federal Reserve's rate expectations have also been reassessed, with markets lowering the odds of a September rate hike from 77% to below 65%. This has added pressure on the dollar. Meanwhile, yields on 30-year Treasury bonds have climbed to 5.27%, a level last seen before the 2008 global financial crisis.

The euro is holding firm around 1.1500, supported by broad dollar weakness and strong eurozone inflation data. The European Central Bank may hike interest rates at its September meeting due to this data. In contrast, the British pound is giving back gains after three days of increases, trading around 1.3470.

The oil market has seen a sharp shift in sentiment due to news that one side in the Middle East conflict is willing to reopen the Strait of Hormuz. This has led to intense selling pressure on WTI crude, down 7.6% to around $78.60. However, regional forces remain on full combat alert, and any escalation could send oil prices rebounding.

The Canadian dollar finds itself caught between conflicting signals due to broad dollar weakness and the sharp drop in oil prices. The Japanese yen is also gaining attention after a coordinated currency intervention with the US Treasury last week.