The dollar declined to its weakest point since early June on Monday, driven by diminishing expectations for additional U.S. interest rate increases in the near term. The currency’s descent reflected a series of softer-than-anticipated economic indicators that led market participants to reassess the Federal Reserve’s policy trajectory.
The dollar index, which tracks the currency against a basket of major peers, reached its lowest level since early June. The euro climbed to a two-month high, trading around $1.1614 and gaining 0.3% for the session. The Japanese yen strengthened 0.2% to approximately 159.04 per dollar, rebounding somewhat despite weaker-than-expected economic growth data from Japan. The yen had previously hit four-decade lows in late July before joint U.S. and Japanese authorities intervened in currency markets. Against the Chinese yuan, the dollar weakened 0.11% to 6.7372 in offshore trading, hovering near its weakest level since 2023.
Market expectations for Federal Reserve action shifted notably following recent economic releases. Data revealed a surprise decline in retail sales alongside restrained inflation readings, prompting traders to lower the probability of a rate increase at the Fed’s September meeting to 30.8% from 52.2% a week prior, according to the CME FedWatch tool. Investors are preparing for potential policy guidance during the Federal Reserve’s Jackson Hole symposium the following week.
Economic slowdowns extended beyond the United States, with Japan reporting slower-than-expected growth during the April-to-June period attributed to subdued household spending and business investment. China also showed signs of deceleration, with industrial output growth slowing and retail sales expanding less than forecast in July. Analysts noted that uncertainty about the Fed’s interest rate path and mixed economic data signals could keep currency markets volatile, as carry trades—which rely on interest rate differentials—remain sensitive to policy direction changes.
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