US Dollar Weakens As Fed Hike Odds Dip And ECB Rate Hike Looms

The US Dollar Index (DXY) is exhibiting clear bearish momentum, trading at approximately 98.70 and holding below the critical 99.20 resistance level. This downward pressure marks the currency's fourth consecutive day of losses, as it remains entrenched below both the nine- and 50-period Exponential Moving Averages (EMAs), which act as dynamic ceilings for any rallies. The 14-day Relative Strength Index (RSI) sits at 37, indicating lingering downside pressure rather than an immediate oversold rebound. Investors are closely monitoring these technical levels, with support established at 98.71 and a potential break below 98.60 likely triggering a test of the 98.40 floor. A bullish reversal would require a decisive close above the 99.67–99.70 resistance zone, which represents a confluence of price resistance and moving averages.

The recent weakness in the greenback is heavily influenced by shifting expectations regarding Federal Reserve policy. Following moderately hawkish comments from Fed Governor Christopher Waller, which suggested that disinflation signals might favor keeping rates steady in September, the probability of a 25-basis-point rate hike dropped to approximately 50%. This change in sentiment has effectively removed immediate labor market stress from the US dollar narrative. Strong nonfarm payrolls data have demonstrated a resilient labor market, reducing the urgency for aggressive monetary easing based on job losses alone. Consequently, market attention is pivoting toward inflation data as the critical variable that will dictate the dollar's next major move. Investors are now positioning themselves around upcoming inflation prints, recognizing that price stability, rather than employment strength, will be the decisive factor in Federal Reserve policy expectations and subsequent currency flows.