United States Dollar Index weakens to near 99.50 as traders push back Fed rate hike bets

The US Dollar Index (DXY) slipped to the 99.50 level on Monday, weakened by data showing a decline in US retail sales in July. The index experienced a dip as it became clear that retail sales fell by 0.6%, after an unrevised 0.2% gain in June, according to the US Census Bureau. Market expectations were for a 0.1% rise. Additionally, weak figures on consumer price index (CPI) and producer price index (PPI) inflation data last week have reduced expectations of a September Federal Reserve (Fed) rate hike, with traders now only giving a 31% probability of a rate increase, alongside a 69% chance of a hike by December.

Analysts from BNY noted that softer U.S. data has reduced expectations of a rate hike, with only less than a full hike anticipated for December. Meanwhile, traders are closely monitoring the US conflict with Iran and efforts to open the Strait of Hormuz. Iran's Foreign Minister Abbas Araghchi stated that there are no ongoing negotiations between Tehran and Washington, and that the US must agree to Iran's conditions for shipping to resume through the waterway.

Struggling to recover, the Dollar has seen a mid-week rebound stall as traders adopt a short dollar trade, largely due to fading expectations of a September Fed rate hike. With the 14-day Relative Strength Index (RSI) around 37, the index remains weak, indicating that downward pressure will likely continue while prices are stuck under the 100-day simple moving average and Bollinger Bands' midline, which currently tilt the near-term bias to the downside.