US dollar feeble as rate hike bets dwindle, Iran conflict in focus
[SINGAPORE/LONDON] The US dollar rose slightly on Tuesday (Aug 18) but remained near multi-month lows against its peers as traders reduced their...
The US dollar showed slight gains on Tuesday but remained near multi-month lows against its peers due to traders reducing expectations of rate hikes. Meanwhile, the euro slipped away from its two-month high and the British pound dipped slightly. The US economy has been facing challenges, evident from unexpected job losses and muted inflation readings, prompting investors to lower expectations for a rate increase by the Federal Reserve.
In contrast, bond traders were more concerned about potential inflation risks from the Middle East conflict and growing fiscal pressures, driving long-term borrowing costs to their highest levels in decades. The chance of a rate hike at the Fed's September meeting dropped from 52% to 35% according to the CME FedWatch tool. The ongoing Iran-US conflict has added to sentiment fragility, with Iran threatening a "fully offensive" military stance.
Despite this, the dollar index managed to gain 0.1% to 99.66, partly due to reduced safe-haven flows. Meanwhile, global bond yields rose due to concerns over the impact of the closed Strait of Hormuz on energy prices.
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