The US dollar weakened against major currencies as disappointing retail sales data prompted traders to reduce expectations for a Federal Reserve interest rate hike next month.

Key Points

• The Bloomberg dollar index fell 0.1% following July retail sales data that showed the largest decline in over a year.
• Swaps traders now estimate a 25% probability of a Federal Reserve rate hike in September, down from 50% last week.
• The yield on the 2-year Treasury note dropped two basis points to 4.15%, while the 10-year yield eased to 4.68%.
• Brent crude traded near $88.55 per barrel amid ongoing geopolitical tensions involving Israel, Lebanon, and potential US sanctions on Iran.
• Japan’s yen strengthened as the country reported an unexpected slowdown in economic growth for the second quarter.

Why it Matters

The shift in interest rate expectations reflects growing investor concern regarding the resilience of the US consumer and broader economic momentum. This uncertainty, compounded by geopolitical instability, is influencing global market sentiment and testing demand for long-term government debt.