Dollar Eases to 99.52 as Fading Fed Hike Bets Weigh on DXY

The US Dollar Index fell 0.29% to 99.5160 in the last completed session, continuing a slide that started when weaker-than-expected US inflation data trimmed bets on further Fed tightening — the live 2026 policy debate is whether the Fed hikes again, not whether it cuts, with the fed funds target still at 3.50-3.75%. Soft July US retail sales (-0.6% m/m, versus expectations for a small rise) and a weaker preliminary consumer-sentiment reading added to the pressure. Equities were mixed in the same session — the S&P 500 slipped 0.29% and the Dow 0.32%, while the Nasdaq rose 0.53% — and the VIX fell 2.60% to 14.25, suggesting the dollar's softness wasn't matched by broad risk-off positioning.

Treasury yields firmed modestly in the same session even as the dollar softened: the 10-year rose 5.5bp to 4.696%, the 30-year 5.2bp to 5.265%, and the 5-year 4.9bp to 4.362%, while the 3-month bill eased 0.8bp to 3.697%. None of these moves are large enough to call a repricing — the desk notes attribute the dollar's softness instead to reduced pricing for further Fed tightening after the weak inflation and retail-sales data, not to a shift in the yield curve itself. The policy backdrop remains a fed funds target of 3.50-3.75%, with the live 2026 policy question being whether the Fed hikes again rather than cuts; the Bank of Japan's policy rate sits at 1.00%, keeping the US-Japan short-rate gap wide.

EUR/USD: 1.1570 (+0.36%), an eight-week high per the desk note, extending a run that began in mid-August on mixed US-Iran signals and firmer Eurozone data. GBP/USD: 1.3533 (+0.34%), lifted by in-line UK Q2 GDP and a softer dollar. USD/JPY: 159.31 (-0.12%), easing as intervention-driven support continues to fade and soft US data weighs. USD/CAD: 1.3874 (-0.41%), pressured by narrowing US-Canada yield spreads and firmer oil, with WTI at $81.47 and Brent at $88.52.

GBP/USD trades at 1.3533, up 0.34% on the day. The last completed session's gain was driven by two factors: UK Q2 GDP data landing in line with expectations (+0.4% q/q, easing from Q1's +0.6%, with June output +0.3% m/m), and a weaker US demand signal after July US retail sales missed forecasts (-0.6% m/m) alongside a softer preliminary US consumer-sentiment reading. Together those trimmed market pricing for further Fed tightening and kept the dollar broadly on the defensive. A narrowing expected Fed-BoE policy-rate differential also supported sterling. No Bank of England rate decision, speech, or intervention news has been found this week. The next scheduled catalyst is Tuesday's ONS UK labour market release — employment, unemployment and average weekly earnings — due August 18.

Today's calendar: Japan's preliminary Q2 GDP is queued this week (no figures on the calendar), alongside revised Industrial Production m/m (forecast 1.3%, previous 1.3%) and Tertiary Industry Activity m/m (forecast -0.9%, previous 1.1%) at 14:30. China's Foreign Direct Investment ytd/y follows at 16:02 (previous -5.0%). Canada publishes July CPI at 22:30 — headline m/m (forecast 0.4%, previous -0.4%), median y/y (forecast 2.0%, previous 1.9%), trimmed y/y (forecast 1.8%, previous 1.8%) and common y/y (forecast 2.5%, previous 2.6%). Also due: the US Empire State Manufacturing Index (forecast 10.6, previous 15.6) at 22:30, NAHB Housing Market Index (forecast 33, previous 34) at 00:00, TIC Long-Term Purchases (forecast 151.4B, previous 232.7B) at 06:00, and Australia's Westpac Consumer Sentiment at 10:30.