Dollar Stays Soft as Rate Hike Bets Fade, Middle East Tensions Simmer
The dollar remains weak against major peers as traders trim Fed hike bets, while Middle East tensions and bond supply concerns keep yields elevated.
The U.S. dollar remained under pressure in Asian trading on Tuesday, hovering near multi-month lows against the euro and sterling, as investors pared back expectations for an imminent Federal Reserve rate increase. The euro was last at $1.1581, close to its two-month high of $1.1614 touched on Monday, while sterling traded at $1.3548, just below its three-month peak from the previous session.
Recent U.S. data has shown retail sales falling for the first time in nine months, alongside unexpected job losses and mild inflation readings. This softer run of economic indicators has led traders to reduce the odds of a Fed hike at the September meeting to roughly 35%, down from 52.2% a week earlier, according to the CME FedWatch tool.
However, analysts remain cautious about the inflation outlook, particularly with the Strait of Hormuz effectively shut and talks to end the U.S.-Iran conflict at an impasse. A senior Iranian official said Tehran would shift to a "fully offensive" military posture, as Washington ruled out extending the June ceasefire agreement.
Bond yields around the world continued to climb, driven by concerns over elevated oil prices and the prolonged closure of the strait. Brent crude futures edged 0.3% higher to $91.14 a barrel, after reaching their highest level since July 30 on Monday. The 30-year U.S. Treasury yield hovered near its highest in nearly two decades, while the 10-year Japanese government bond yield hit its highest level since September 1996.
Recent U.S. Treasury auctions have also drawn attention, with investors demanding higher yields to absorb Washington's growing borrowing needs. "Frequent, large-scale treasury auctions are a chance for the bond market to push back against the government's eroding fiscal trajectory," said Anthony Saglimbene, chief market strategist at Ameriprise Financial.
The Japanese yen remained stuck just below the 160 level per dollar, trading at 159.46. Focus now shifts to the Bank of Japan's meeting next month, where the central bank is expected to raise interest rates and may consider more aggressive hikes thereafter, according to sources.
The Australian dollar firmed 0.11% to $0.71119, near its strongest level since early June, while the New Zealand dollar stood at $0.5902.