Dollar Weakness Spreads as Rate Hike Bets Dwindle Amid Iran Tensions
The US dollar has weakened against major currencies as investors reassess the likelihood of a near-term rate hike by the Federal Reserve. The euro reached USD 1.1581, just shy of its two-month high of USD 1.1614, while sterling held at USD 1.3548, close to its three-month peak. This comes after recent data showed US retail sales fell in July for the first time in nine months.
Data from the CME FedWatch tool shows traders now expect a 35% chance of a rate increase at the September meeting, down from 52.2% just a week ago. Despite this, analysts remain cautious about inflation, particularly with the ongoing tensions between the US and Iran.
The Strait of Hormuz remains shut, and an impasse in talks to end the conflict has led Nohshad Shah, head of EMEA fixed income sales at Citadel Securities, to note that 'inflation has been above target for most of the past five years.' This has left little room for error in a world of constant supply shocks.
The situation is further complicated by Iran's decision to shift to a 'fully offensive' military posture due to stalled negotiations with the US. Bond yields around the world are rising as traders remain wary of elevated oil prices and a prolonged closure of the Strait of Hormuz.