**USD Weakened as Fed Rate Hike Expectations Fade and Global Growth Concerns Intensify**
*Original Author: Mitrade (source article from: Mitrade Live News)*
*Rewritten and expanded by AI*
The US dollar (USD) weakened across the board in recent sessions, reflecting increasing market sentiment that the Federal Reserve may soon shift away from its aggressive interest rate hiking cycle. This shift in expectations arises amid signs of cooling inflation, a slowdown in US economic momentum, and growing investor concerns about global growth. Traders are now repositioning based on emerging central bank outlooks, weakening US economic data, and wider macroeconomic dynamics.
This article rebuilds and expands upon an article originally published by Mitrade titled “USD Weakens Amid Fed Policy Expectations, Growth Fears Take Center Stage.” Additional insights are provided to place this analysis in the context of current global market developments.
## Fed Rate Hike Bets Strength Fade
For most of 2022 and into 2023, the Federal Reserve was aggressively raising interest rates in a bid to tame persistently high inflation, which peaked at levels not seen in over four decades. However, signs have emerged in recent months suggesting that the inflationary pressures may be ebbing, and with that, the market’s anticipation of further rate hikes has diminished.
Key developments causing this sentiment shift include:
– **Moderating inflation data:** The July Consumer Price Index (CPI) came in below expectations. Headline inflation cooled to 3.2% year-over-year, while core inflation (excluding food and energy) slowed to 4.7% from 4.8%. These readings are a significant retreat from the 9.1% year-over-year peak observed in June 2022.
– **Labor market softening:** Although the US labor market remains resilient, recent data points indicate a gradual easing. July’s non-farm payrolls report showed 187,000 jobs added, falling short of the 200,000 forecast. Unemployment remains low at 3.5%, but jobs growth has decelerated.
– **Reduced rate hike probabilities:** According to the CME FedWatch Tool, as of mid-August 2023, the likelihood of the Fed keeping interest rates unchanged at its September 2023 meeting is over 85%. This is a sharp reversal from earlier in the year, when markets largely priced in additional hikes.
As the likelihood of further interest rate increases drops, the US dollar tends to weaken due to falling yields on US Treasury bonds, making the greenback less attractive to yield-seeking investors.
## DXY (US Dollar Index) Sheds Strength
The US Dollar Index (DXY), which measures the dollar’s value against a basket of six major world currencies, reflects the market’s response to the Fed’s policy shift. It fell noticeably as traders rotated out of dollar positions.
– As of August 18, the DXY was trading near the 103.50 level, having dropped from around 104.20 the previous week.
– Weakness was particularly notable against the euro (EUR), Japanese yen (JPY), and British pound (GBP) — currencies that have benefited from their central banks maintaining or projecting more hawkish stances.
Currency analysts at leading investment banks, including Goldman Sachs and JPMorgan, suggest that the USD may remain under pressure in the short term due to:
– Investor repositioning in anticipation of a Fed pivot
– External growth risks (such as China’s economic fragility)
– Rebound in risk appetite, prompting flows into emerging markets and commodity-linked currencies
## Foreign Currencies See Gains Against USD
As the dollar lost steam, several major currencies began to recover, driven by improved domestic data or more cautious optimism in their respective central banks.
### Euro (EUR)
– The euro has been buoyed by expectations that the European Central Bank (ECB) may continue tightening, even as the US softens. ECB officials have voiced concern over lingering inflation in the eurozone
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