NEW YORK, NY, August 17, 2026– The US dollar extended its losing streak to a third consecutive session on Monday, weakening against most major peers as a run of soft economic data pushed traders to all but abandon bets on a Federal Reserve interest-rate hike next month.
The commonly followed dollar index declined by about 0.1 to 0.2 per cent and remained close to levels not seen since May, amid expectations for the U.S. Federal Reserve‘s monetary policy to become the key driver of market sentiment. The dollar was especially weak against the Australian, New Zealand and British currencies, while developing country currencies advanced overall.
The U.S. dollar weakened across major currency pairs following the publication of the U.S. Census Bureau July Retail Sales Report, which showed an unexpected drop of 0.6% monthly contraction. After the release of the data, swap prices moved swiftly to reflect this, lowering the implied probability of an interest rate rise from the Fed to just 30%. With Kevin Warsh now serving as Fed chair, the markets are keeping their eyes out for signals of a new regime, as Lisa Cook, a sitting member of the Federal Reserve Board of Governors, remains at the center of the administration’s continuous effort to remove her from her post.
Treasuries were bid, with the interest rate-sensitive two-year Treasury falling slightly while other longer-dated maturities also ticked lower. This comes ahead of an active week of Treasury supply, including an auction of the 20-year maturity, which could indicate how investors are feeling about longer-dated US debt, amid several big auctions recently, including last week’s 30-year sale, which priced at the highest yield since 2001, a quarter-century high.
Beyond the domestic data, currency strategists point to a broader set of pressures weighing on the dollar’s traditional safe-haven appeal. Richard Franulovich, head of foreign-exchange strategy at Westpac Banking Corp. in Sydney, said a “murky Fed reaction function” remains an area of concern in relation to its ability to hedge. This is because of the continued dialogue between the White House and the heads of the Federal Reserve as well as the uncertainty that surrounds monetary policy. Besides, Franulovich also alluded to the issue of de-dollarization and how it is being accelerated by poor bids for long-term U.S. Treasury bonds.
Financial markets demonstrated a cautionary mood more generally in the wake of Monday, when investors were looking out for developments in the reopening of the Strait of Hormuz following a nearly 6 per cent increase in oil prices last week. Prices of Brent crude rose slightly towards $88 per barrel on the backdrop of new Israeli attacks against Lebanon and fresh US sanctions on Iran, despite decreasing volatility on account of the Middle Eastern conflict as a whole. “The most important factor that is holding back financial markets at the moment is still geopolitics,” said Kyle Rodda, an analyst at Capital.com.
Equity futures in the U.S. and Europe rallied, while markets in Asia had a mixed performance, with the Hang Seng index being up due to the expected upcoming Chinese data release. Additionally, gold spot prices remained elevated close to levels not seen for several months, along with copper, supported by a weaker dollar.
Market participants anticipate that the Fed’s cycle is going to be delayed compared to other major central banks, which is likely to affect the dollar negatively amid the expected Fed meeting minutes and remarks by Fed Chairman Warsh at the Jackson Hole symposium.
