The U.S. dollar index (DXY) fell by 0.27% on Friday, driven down by disappointing retail sales and consumer sentiment reports. July U.S. retail sales declined by 0.6%, significantly below expectations of a 0.1% increase, while the University of Michigan’s preliminary August consumer sentiment index dropped to 51.0 from July’s 55.2. The odds of a Federal Reserve rate hike in September decreased to 32% from 35% the previous day.
Treasury yields rose by 5 basis points amid inflation concerns, even as safe-haven demand for the dollar waned. In an evolving geopolitical context, President Trump has pivoted from military action against Iran toward implementing unprecedented economic measures, as tensions escalated with reports of Iran attacking oil vessels in the Strait of Hormuz.
Market sentiment is contrasting for the euro and yen, with a 92% probability of an European Central Bank rate hike on September 10 compared to only 32% for the Fed, while the Bank of Japan sees an 81% chance of a rate hike on September 18. Precious metals prices received support amid dollar weakness and heightened safe-haven demand, as gold holdings reached a record high of 76.08 million troy ounces in July due to consistent purchases by China’s central bank.
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