DXY Struggles Amid September Rate Hike Uncertainty and Trade Policy Headwinds

The US Dollar Index (DXY) is facing headwinds from various policy uncertainties, making it difficult to regain the 100 level. This has led DBS Group Research strategist Philip Wee to note that the DXY's negative bias is becoming increasingly hard to ignore.

Wee attributes the greenback's underlying weakness to European currencies, which have shown strength despite the volatility of the Japanese Yen (JPY). When excluding the JPY's correction, the EUR (+0.19%), GBP (+0.14%), and CHF (+0.14%) better represented the dollar's weakness.

The reduced expectations for a September Federal Reserve rate hike are also weighing on the DXY. Following last week's underwhelming FOMC meeting, futures markets cut the probability of a September Fed hike to 58% from 72%. US trade policy uncertainty remains another headwind for the USD, with the US Court of International Trade reporting that about $100bn or 60% of the Liberation Day tariffs collected have been refunded.