Dollar Weakness Drives Up Sterling and Euro Amid Dovish Fed Comments

The dollar declined on Friday as Federal Reserve Governor Christopher Waller's dovish comments reduced the likelihood of a September rate hike. This led to a broad weakening of the dollar, with sterling and the euro gaining against it.

According to ING's Chris Turner, 'given the hot debate over whether the Fed raises rates at all, it looks like investors are concluding that any Fed tightening cycle will be very modest and not enough to derail a relatively benign investment backdrop.' This presents a mildly negative backdrop for the dollar in the short term.

The market is now pricing a 50% chance of a September Fed hike, down from earlier expectations. Short-dated U.S. yields fell by 5 basis points as a result.