Overview
- The dollar has weakened this week after a sharp 5–6% drop in WTI crude and reduced Middle East tensions reduced demand for safe-haven assets, lifting global stocks and pressuring the greenback.
- A stronger-than-expected ISM manufacturing print briefly bolstered the dollar but was overwhelmed by softer U.S. labor and factory orders data that kept downside pressure on the currency.
- Traders sharply cut the odds of a 25 basis-point Fed hike in September as lower oil prices lowered headline inflation expectations and Treasury yields fell, with market-implied probabilities drifting into the mid-50s to mid-60s percent range.
- Japan conducted a yen-buying intervention at the end of July and the U.S. Treasury publicly pledged continued support, a move that steadied the yen and signaled readiness for further coordinated FX action.
- Markets are now focused on the September Fed and Bank of Japan meetings for direction, with lower energy costs easing consumer price pressure and any further FX intervention able to prompt rapid shifts in currency and bond markets.