Dollar Index Near 99.50 as Fed Hike Odds Fall to 31%

Dollar Index nears 99.50 as weak U.S. retail sales cut Fed hike bets to 31%. Explore DXY technical levels, Fed expectations and key dollar risks.

Dollar Slips on Weak Retail Sales

The U.S. Dollar Index (DXY) traded near 99.50 during Asian hours Monday as investors reduced expectations for another Federal Reserve interest-rate increase. The dollar came under pressure after fresh U.S. economic data showed consumer spending weakened more than economists had anticipated.

U.S. Retail Sales fell 0.6% in July after an unrevised 0.2% increase in June, according to the U.S. Census Bureau. Economists had expected sales to rise 0.1%. On a year-over-year basis, retail sales increased 5.0%, down from June’s revised 6.8% gain.

The softer consumption data followed weaker-than-expected Consumer Price Index and Producer Price Index readings released last week. Together, the figures have encouraged traders to scale back expectations for a September Fed rate hike.

• September hike probability: 31%
• December hike probability: 69%
• DXY trading level: near 99.50

Markets Cut Fed Rate Expectations

CME FedWatch data show that markets now assign only a 31% probability to a Federal Reserve rate increase at the September 15-16 meeting. Expectations for a hike by December remain considerably stronger, at 69%, although recent economic weakness has reduced the likelihood of aggressive monetary tightening.

BNY analysts said softer U.S. data had reduced rate-hike expectations, with markets pricing less than one full increase through December. They also pointed to elevated longer-term Treasury yields, which some market participants associate with concerns about the credibility of U.S. fiscal and monetary policy.

Scotiabank strategists said the dollar’s midweek rebound quickly faded after the latest inflation and producer-price data. Investors have again shifted toward short-dollar positions as expectations for a September hike diminish.

The dollar could also remain sensitive to geopolitical developments. Traders are monitoring tensions between the United States and Iran and efforts to reopen the Strait of Hormuz, a major global energy shipping route. Iranian Foreign Minister Abbas Araghchi said Friday that negotiations with Washington were not currently taking place and that U.S. agreement to Iranian conditions would be required for shipping to resume.

DXY Faces Key Technical Resistance

Technical indicators continue to reinforce the dollar’s fragile near-term outlook. The DXY remains below its 100-day simple moving average, while the Bollinger Bands’ 20-period midpoint also limits upside momentum.

The 14-day Relative Strength Index is around 37, indicating weak momentum without yet reaching deeply oversold territory. As long as the index remains below key moving-average resistance, sellers could retain control.

The main technical levels are:

• Resistance: 99.75, then 100.35
• Major upside barrier: 101.80
• Initial support: 98.85

A sustained break above 99.75 could encourage a recovery toward 100.35 and potentially 101.80. Conversely, a move below 98.85 would strengthen the bearish setup and expose the dollar index to further declines as traders reassess the Fed’s policy path.