Dollar Holds Near Lows as Markets Trim Fed Hike Expectations
The US dollar remained relatively flat in Tuesday's trading (Aug 18), hovering near multi-month lows. Pressure on the greenback mounted as markets continued to scale back expectations for a Federal Reserve interest rate hike, although the risk of escalating conflict in the Middle East kept investors cautious.
The euro traded around US$1.157, having previously touched a two-month high near US$1.161. Sterling dipped slightly to around US$1.3537 following weak UK labor market data, though it remained close to a three-month high.
A series of US economic data points in recent weeks has signaled softening momentum, ranging from a weakening labor market to relatively contained inflation. These conditions have reduced the probability of a Fed rate hike in September to approximately 35%, down from over 50% the previous week. Markets have also ceased fully pricing in a rate hike before the end of the year.
However, bond market sentiment remains overshadowed by inflation concerns. US-Iran tensions and ongoing disruptions in the Strait of Hormuz keep the risk of rising energy prices high, while fiscal pressures have pushed long-term borrowing costs in several developed nations to multi-decade highs.
These geopolitical risks have helped curb the dollar's decline by driving safe-haven demand. The Dollar Index rose about 0.1% to 99.62. Meanwhile, the Japanese yen weakened slightly to around 159.70 per dollar, erasing nearly half of the gains made following the joint US-Japan intervention in late July.
Newsmaker Analysis: The dollar is currently caught in a tug-of-war between diminishing expectations for a Fed rate hike and safe-haven demand driven by Middle East risks. Should US data continue to weaken, downward pressure on the DXY could persist, potentially allowing the euro and pound to strengthen. However, a rise in oil prices or a fresh escalation in the Strait of Hormuz could reignite inflation concerns and provide temporary support for the dollar.
Source: Newsmaker.id
