Dollar steady but set for weekly drop on fading US rate hike bets

Published Fri, Jul 17, 2026 · 08:55 PM

[SINGAPORE/LONDON] The dollar held steady on Friday (Jul 17) but was poised for a weekly decline as a tame US inflation report this week led traders to cut bets on imminent rate hikes from the Federal Reserve, although escalating attacks in the Middle East soured sentiment.

Iran and the United States exchanged intensifying fire in a week-long escalation that has largely unravelled last month’s truce, spurring safe-haven bids for the dollar and leading oil prices near one-month highs.

In currency markets, the euro was very slightly lower at US$1.143, set for a 0.2 per cent rise in the week.

Sterling fell 0.3 per cent to US$1.344, but was on course for its third straight week of gains. The rise has reflected UK economic growth and greater political certainty, with Andy Burnham set to become prime minister on Monday and reports indicating he will pick a centrist finance minister.

The Japanese yen was flat, fetching 162.33 per US dollar, remaining rooted near the 40-year low of 162.84 it touched at the start of the month.

Traders remained wary of official intervention from Tokyo after Japanese Finance Minister Satsuki Katayama reiterated the government’s readiness to take decisive action.

The dollar index, which measures the US currency against six other units, was less than 0.1 per cent higher at 100.79, set for a weekly drop of 0.2 per cent.

The index hit a one-month low earlier this week on easing chances of a near-term rate hike but safe-haven flows have helped support the greenback.

“There has been no let-up in the escalation of the conflict in the Middle East which continues to curtail appetite to sell the dollar,” said Derek Halpenny, a senior currency strategist at MUFG.

“US data releases yesterday have also helped curtail dollar selling,” he added.

Data on Thursday showed US retail sales rose slightly in June as lower gasoline prices weighed on receipts at service stations, but online spending surged, prompting economists to upgrade their second-quarter growth estimates.

The economy’s resilience was underscored by other data also showing labour market stability. Economists believe the Federal Reserve will keep interest rates unchanged later this month after data showed consumer price inflation had cooled in June.

Yet policymakers are also wary of banking too heavily on one month of improvement after months when inflation moved in the wrong direction.

Chances for a Fed hike in July stood at 11 per cent, versus a 25 per cent implied probability last week, according to the CME FedWatch tool. Traders are pricing in 26 basis points of hikes by December.

“I don’t think July is live for rate hikes,” said Tani Fukui, senior director of global economic and market strategy for MetLife Investment Management. “We expect neither rate hikes nor cuts in 2026.”

The Australian dollar was poised for a third week of gains, although it was 0.3% softer on the day at US$0.698 as risk-off sentiment prevailed, with global stocks falling on Friday.

China’s yuan weakened from a one-month high against the dollar, but remained on track for its third straight week of gains. REUTERS