Dollar gets little lift from boost in Fed hike expectations

The dollar faced limited gains on Monday as US markets reopened, despite expectations of a Federal Reserve rate hike. The currency's decline was fueled by rising Middle East tensions, which could spark greater inflationary pressures and prompt global central banks to tighten policies simultaneously. Additionally, concerns over soaring US debt and policy uncertainties further pressured the greenback.

Currency movements were generally subdued in the early Asia trade session, as US markets were on a holiday. The euro edged up slightly to $1.1618, while the British pound remained steady at $1.3519. The dollar slipped 0.07% to 99.09, nearing its recent lowest point of 98.558. Traders now estimate a 57% probability of a September Fed rate hike, contingent on Friday's inflation data.

If the inflation report is robust, it could solidify the argument for a September hike, potentially bolstering the US dollar. However, a milder reading might strengthen arguments for a pause in rate hikes, leaving the US dollar more susceptible to a dovish Fed policy shift. Even if a September hike is inevitable, the dollar is unlikely to reach new cyclical highs due to tightening measures by other major central banks, which reduces policy divergence.

The European Central Bank is expected to raise rates to 2.75% on Thursday amid elevated oil prices, while the Bank of Japan is likely to increase rates by 0.25% on September 18, with a 60% chance of further increases by December. Meanwhile, the yen gained over 0.2% to 155.88 per dollar on Monday, buoyed by projections of a BOJ hike this month and concerns that persistent strength in the yen could disrupt carry trade profits.

In other currencies, the Australian dollar edged up 0.12% to $0.7208, while the New Zealand dollar stayed flat at $0.5880. Bitcoin maintained its support above $80,000, trading at $80,145.95, which attracted investor interest as they sought alternatives to the dollar.