Dollar feeble as rate hike bets dwindle, Iran war worries grow
SINGAPORE: The US dollar held near multi-month lows against most major currencies on Tuesday as traders walked back expectations of near-term monetary tightening, although the imminent threat of an escalation in the Middle East war left sentiment fragile.
The US dollar experienced a decline to multi-month lows against major currencies on Tuesday as traders reduced expectations of near-term interest rate hikes. The euro held steady around US$1.1581, close to a two-month high of US$1.1614. The British pound was slightly below US$1.3548. July retail sales in the US fell for the first time in nine months, following unexpected job cuts and modest inflation.
This has led to a 35% probability of a rate increase at the Fed's September meeting, down from 52.2% a week earlier. However, analysts caution about the future path of inflation, which has remained above target, leaving limited room for error amid ongoing supply shocks. Iran announced it would adopt a more aggressive military stance due to stalled negotiations to end the US-Iran conflict.
Meanwhile, bond yields rose globally, driven by concerns over high oil prices and the Strait of Hormuz closure. The 30-year bond yield approached its highest level in nearly two decades. Long-term Treasury auctions have drawn increased investor scrutiny due to rising US debt and fiscal prudence. The yen hovered near 160 per US dollar, awaiting the Bank of Japan's potential rate hike next month.
The Australian dollar strengthened to US$0.71119, near its best since early June, while the New Zealand dollar reached US$0.5902.
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