U.S. Dollar Slides As Rate Hike Expectations Fade Due To Rising Oil-Linked Inflation Concerns

(RTTNews) - The U.S. Dollar value edged lower as investors scaled down their expectations of a rate hike by the U.S. Federal Reserve with the Middle East crisis showing no sign of cooling, pushing crude oil prices and oil-linked inflationary concerns higher.

Today, the U.S. Dollar Index DXY which measures the Greenback against a basket of other major currencies was last seen trading at 98.78, down by 0.86 (or 0.86%).

In the U.S., data from the Mortgage Bankers' Association's revealed that the Purchase Index decreased to 154.80 on August 14 from 157.90 of the previous week.

Against the Euro, the USD was trading at 1.168, down by 0.90%.

Against the GBP, the USD was trading at 1.361, down by 0.55%. According to the Office for National Statistics, the annual inflation rate in the U.K. increased to 2.90% in July, the highest in four months, from 2.60% in June, and in line with market expectations. On a monthly basis, consumer prices increased 0.30% in July, matching market estimates.

While the annual core inflation rate remained at 2.60% in July, on a monthly basis, it decreased to 0.20% in July from 0.30% in June.

Against the USD, the Japanese Yen was trading at 158.146, up by 0.91%, the Swiss Franc was trading at 0.797, up by 1.84%; and the Canadian Dollar was trading at 1.381, up by 0.63%.

Against one unit of Australian Dollar, the USD was trading at 0.712, down by 0.55%.

The deadlock in the negotiations between the U.S. and Iran continues to drag with both sides refusing to ease their rigid stance, and thereby, the faceoff has pushed away expectations of an early end to the Middle East crisis.

The June 17 Memorandum of Understanding signed between the U.S. and Iran involved a 60-day ceasefire period for both nations to effectively discuss ways to address all issues causing hostilities.

On Monday, the 60-day window lapsed, and speaking about this, U.S. President Donald Trump stated that the U.S. was not particular about extending the ceasefire.

Yesterday, escalating the situation further, first Trump posted an image of the Hormuz region through Truth Social highlighting it as a new U.S. territory.

Later, through the same platform, Trump announced that the U.S. is not holding any talks with Iran currently and no further discussions have been chartered either.

Declaring again that the Strait of Hormuz is open and operative, Trump asserted that it is free of sea mines planted by Iran.

However, Iran denied Trump's claims and repeated that it is in full control of the seaway.

With the prevailing uncertainty, shipping traffic across the strait has diminished drastically.

Day by day, the mounting supply disruption concerns are pushing crude oil prices on the upside, leading to oil-linked inflation pressure to all major economies.

On the monetary front today, the U.S. Treasury announced that it will at least double the size of its liquidity-support buyback operations for longer-dated Treasury securities.

With inflation expectations increasing and real yields declining, precious metals surged.

The Treasury will increase the maximum purchase from $2 billion to nearly $4 billion per operation, beginning September 9.

Today, the minutes of meeting from July month U.S. Federal Open Market Committee's monetary policy discussions showed that many participants were of the view that policy tightening would be necessary if inflation did not decline.

Currently, investors are betting only on a 32.80% chance of a 25-basis-point interest rate-hike at its upcoming meeting of the U.S. Federal Reserve on September 15-16 while the odds on rates being held at the current level stand at 67.20%, according to the CME Group's FedWatch Tool.