The U.S. dollar traded in a narrow range against major currencies on Tuesday as markets continued to adjust expectations toward a more cautious Federal Reserve following a series of softer U.S. economic data.

Expectations for a Fed Rate Hike Fall Sharply

Recent data suggest that the U.S. economy is beginning to lose momentum, including unexpected job losses in July and relatively mild inflation readings.

As a result, markets have sharply reduced expectations for a September rate hike. The probability of the Fed keeping interest rates unchanged has risen to nearly 70%.

This more dovish interpretation of the Fed’s policy outlook has put pressure on the dollar, particularly as Fed Chair Kevin Warsh is now being viewed as less hawkish than previously expected.

Dollar Remains Range-Bound

The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, edged up 0.09% to 99.63.

Key currency moves included:

• EUR/USD: around 1.1576

• GBP/USD: around 1.3536

• USD/JPY: around 159.61

• AUD/USD: down to around 0.7086

• USD/CNH: slightly higher at around 6.747

Although the dollar has seen brief rebounds, some analysts believe short-term USD strength could still be sold into if U.S. economic data continue to weaken.

Oil Prices and Geopolitical Risks Remain Key Concerns

One factor complicating the dollar outlook is that inflation risks have not fully disappeared.

Disruptions in the Strait of Hormuz continue as tensions between the U.S. and Iran remain elevated, raising concerns that energy prices could stay high.

Brent crude settled near $91.02 per barrel, close to its strongest level since late July.

If oil prices continue to rise, inflationary pressure could return and potentially change expectations for Fed policy.

Rising Bond Yields Add Another Layer of Pressure

The yield on the 30-year U.S. Treasury has climbed to its highest level since 2007.

This highlights an important market contradiction: softer economic data are pushing investors toward expectations of a more dovish Fed, while high oil prices and geopolitical risks are increasing concerns about longer-term inflation.

This tension is one reason the dollar is struggling to establish a clear direction.

Conclusion

The U.S. dollar is currently being pulled in two opposing directions.

On one side, weaker economic data and expectations that the Fed will keep rates unchanged are weighing on the greenback.

On the other, high oil prices, geopolitical tensions, and rising bond yields could support the dollar if inflation concerns intensify again.

In the near term, markets are likely to remain focused on U.S. labor data, inflation, oil prices, and the Fed’s September meeting for clearer signals on the dollar’s next move.

This article is for informational and market analysis purposes only and does not constitute investment advice.

Source: Reuters