US Dollar: Softer tone with falling yields – MUFG

MUFG's Lee Hardman observes the US Dollar (USD) exhibiting a more subdued performance as Federal Reserve (Fed) rate hike forecasts are tempered due to disappointing labor statistics and a mixed United States (US) Producer Price Index (PPI) report. Short-term US yields are falling, although the Dollar index remains above its 200-day moving average.

The US dollar has maintained a softer tone throughout the week, facilitated by the reduction of Fed rate hike expectations. Diminishing private employment and wage growth, along with limited indications of rising energy prices translating into core inflation since the US-Iran conflict erupted, have provided the Federal Reserve with additional room to maintain stable rates.

Consequently, the Fed may assign less significance to the upside inflation surprise in July. The persistent decrease in short-term US rates has been exerting a downward pressure on the US dollar this month, but it has not yet reached a level to spark another significant decline following the sell-off at the end of the previous month.

The dollar index continues to trade above the 200-day moving average, currently situated around 99.200.