Dovish Fed Bets Weigh on US Dollar Amid Softer Economic Data

The US dollar experienced a mostly flat day against major peers on Tuesday, as markets continued to price in a dovish response from the Federal Reserve following softer economic data.

Data released in recent weeks has shown a decline in the US economy, including unexpected job losses last month and mild inflation readings. This has led investors to scale back expectations of an interest rate hike by the Federal Reserve, with market pricing now indicating a near-70% chance of a hold in September.

Eugene Epstein, head of structured products for Moneycorp North America, attributed the dollar's weakness to a shift in interpretation following the last Fed meeting. 'Current levels... are just reflecting the surprised dovishness we saw in the last Fed meeting or at least the interpretation of dovishness,' he said.

The euro eased 0.07% higher against the dollar, while sterling strengthened 0.01% to $1.35420, just shy of its three-month peak. The Japanese yen was 0.3% weaker against the dollar, having erased nearly half of the gains from a joint US and Japan intervention at the end of July.