USD Weakens In Absence of Fed Guidance

• Fed funds futures now pricing rate hike chance at 6%


• CME FedWatch Tool places rate hike chance at 45%

With the Feds slowly killing all hopes of a rates hike anytime soon, the dollar today fell against many major currencies, the dollar was also largely undermined by the recent soft US economic data that rattled the anticipation for an interest rate hike this year by the Federal Reserve Bank.

“Federal funds futures implied traders saw a roughly 43 percent chance on Monday that the central bank would increase rates at its December policy meeting”, according to the CME's FedWatch tool. This new reading is down by 45% from late last Friday.

The data has prompted a revision of investor anticipations for a Fed rate increase by the end of 2016. The Fed funds futures market, the tool that is used by investors to place bets on the pace of rate increases, was recently pricing in just a 6% chance of a Fed hike in September, down from nearly 20% at the beginning of August.

“There could be some concerns that domestic growth is slowing in Q3 that would validate why the dollar is suffering, but the major catalyst is low optimism that the Federal Reserve are going to raise U.S. interest rates this year,” said Jameel Ahmad, market strategist at FXTM.

Traders also believe that the minutes from the Fed's July policy meeting, scheduled for release on Wednesday, could give investors more hints as to the direction of monetary policy.

The USD’s fall against the yen can be further blamed on traders’ reaction to the Bank of Japan’s recent stimulus action, The USD has also been in decline for 4 out of the last 5 trading sessions.

The dollar index was lower at 95.57 after falling to 95.254 on Friday, its least level since the 3^rd of August. The USD was seen 0.2% lower against the Japanese yen at 101.14 after it previously shed 0.6% last Friday, after the US Producer Price Index and Retail Sales reportedly fell below market expectations. The Euro climbed 0.3% higher to settle at 1.1190, after its previous 0.2% gain last Friday.

On Friday the market witnessed a drop lower for US Treasury yields, as the 10 year yield dropped by about 5 basis points to a 2 week low of 1.48%. It traded a bit higher today.

"As it stands now, market participants see a less than 50-50 chance of rates rising by December. The dollar will continue to struggle until that chance rises meaningfully," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

In the absence of new trading hints, investors are searching for any guide that would increase the chance of the a rates hike by the Feds, hopefully from the Fed Chairwoman Janet Yellen’s speech at the central bank’s Jackson Hole symposium to be held on August 26.