DXY Eases Amid Lower US Yields as Waller Puts Hike Odds at 50%

US Dollar Index (DXY) trading has eased alongside lower US Treasury yields after Federal Reserve Governor Michael Waller signaled that he would prefer to keep interest rates unchanged in September if disinflation persists. This shift in sentiment has led to a decrease in the probability of a rate hike in September, with odds now at 50% compared to 68% just a week ago.

The upcoming US payrolls data on Friday night will be closely watched, but it's next week's Consumer Price Index (CPI) and Producer Price Index (PPI) releases that may ultimately determine the fate of the September rate hike. Waller emphasized the importance of giving disinflation a chance to continue, citing recent trends in inflation drivers.

Waller noted that much of the tariff impact has already passed through, while higher energy prices have yet to significantly influence broader prices. He kept the door open for a potential rate hike if renewed inflation acceleration is seen, but acknowledged that policy is only slightly restrictive at present.