Key facts
- The U.S. dollar weakened due to reduced expectations of near-term Federal Reserve monetary tightening.
- Soft U.S. economic data, including weak retail sales, has lowered the probability of a September Fed rate hike.
- Global bond yields rose, with German and French 10-year yields reaching multi-year highs.
- Escalating Middle East tensions and fears of persistent inflation are contributing to market fragility.
- Brent crude oil prices increased amid fading hopes for a U.S.-Iran peace deal.
The U.S. dollar weakened against major currencies as soft economic data reduced expectations for an imminent Federal Reserve rate hike. Traders now price a 30% chance of a Fed rate hike next month, down from 50% a week ago. This decline in rate hike bets followed weak U.S. retail sales data and other soft economic indicators.
Simultaneously, global bond yields surged, with European yields hitting multi-year highs. Fears of persistent inflation, fueled by escalating Middle East tensions and rising crude oil prices, contributed to this trend. Iran announced a shift to a 'fully offensive' military posture as U.S.-Iran peace talks stalled and a ceasefire extension was ruled out. Brent crude climbed, while basic resources stocks fell as rising Treasury yields dampened demand for gold.
European shares edged lower amid these pressures. Germany's 10-year Bund yield reached its highest level since 2011, and France's 10-year yield hit a 16-year peak, reflecting concerns over inflation and increased defense borrowing.