Dollar falls to three-month low as Fed rate hike expectations wane

The US dollar is having a rough August. The dollar index, which measures the greenback against a basket of major currencies, slid to approximately 99.5 on August 17, dropping about 0.17% in a single session and touching its weakest level in three months. The culprit is a familiar one: Wall Street is quietly walking back its bets that the Federal Reserve will keep tightening. A month ago, traders were split almost evenly on whether the Fed would raise rates in September. Now, market pricing puts the probability of the Fed holding steady at roughly 67%. That kind of swing in sentiment, in just four weeks, is enough to move currencies in a meaningful way. What changed the math The Fed’s July 29 meeting set the stage. Policymakers voted 9-3 to hold the federal funds rate at its current target range of 3.50% to 3.75%, keeping policy unchanged after a series of cuts in late 2025 had brought rates to that level. The three dissenters wanted a 25 basis point hike. What softened the hawkish case was the data that followed. July’s jobs report showed diminished payroll gains alongside downward revisions to prior months, painting a picture of a labor market that is cooling faster than some expe...