US Dollar Weakens as Fed Hike Bets Diminish

The US dollar has weakened after a recent rally, as market expectations for a Federal Reserve rate hike have softened. A weaker-than-expected payrolls report and a slightly lower ISM services print contributed to the retreat, along with a stabilization in the bond-market selloff. Treasury yields dipped slightly but remain high, while trade data showed a surge in imports to a record $420.8 billion, widening the deficit to $105.6 billion and raising concerns about weaker economic growth.

The euro gained strength against the US dollar, with bets rising for an ECB hike in December to 80%. French bond yields also pulled back, easing fears of market stress. However, analysts at ING warn that the euro's rebound may not resolve underlying fiscal concerns, with a downside risk targeting EUR/USD at 1.10.

Meanwhile, tensions in the Strait of Hormuz have escalated, with Iran increasing attacks on tankers. Nearly 20 commercial ships, mostly tankers, have been targeted in the past month, threatening crude oil exports from the Persian Gulf.