During Thursday's Asian trading session, the US dollar index hovered near 98.80, remaining at its weakest level since late May. The persistent cooling of Federal Reserve rate hike expectations serves as the primary headwind, with the probability of a September hike sliding to roughly 33% from 47% just one month ago.

Adding to the pressure, the US Treasury has announced plans to double its long-dated bond repurchase program from $2 billion to $4 billion per operation, while growing concerns over the national debt surpassing $40 trillion further weigh on the currency. On the geopolitical front, tensions between the US and Iran continue to escalate, with President Trump vowing to impose the "most severe economic actions" ever taken against Tehran, and the UAE suspending all trade with Iran following missile attacks—though Iranian officials deny involvement. Despite these risks, safe-haven demand has failed to provide meaningful support for the dollar.

Data and Policy Pressures Drive Dollar to Lowest Level Since Late May

The dollar index currently trades near 98.80, its weakest point since the end of May. A surprise decline in July nonfarm payrolls, subdued inflation readings, and soft retail sales figures have steadily eroded market expectations for a September rate increase. According to the CME FedWatch tool, the probability of a 25-basis-point hike next month has dropped to 32.7%, down from 47% a month earlier.

Meanwhile, the Treasury's bond repurchase operations are also exerting downward pressure on the greenback. Reports indicate the department will expand its long-dated debt buyback program, raising the single-operation cap from $2 billion to at least $4 billion in an effort to curb surging borrowing costs. Combined with anxiety over the national debt surpassing $40 trillion, these factors have pushed the dollar lower.

Geopolitical Tensions Rise, Yet Haven Demand Fails to Boost Dollar

On the geopolitical front, the US-Iran conflict continues to intensify. Trump has announced plans to impose the "harshest economic actions" ever against Iran, describing it as an unprecedented campaign of economic confrontation and isolation, while warning that nations providing financial aid to Tehran will face severe economic consequences. In a related development, the UAE has halted all trade with Iran after two ballistic missile strikes, though Iran denies launching those projectiles.

However, risk-averse flows triggered by these geopolitical tensions have not translated into meaningful dollar strength. Economists at DBS Bank Research note that the dollar is trading in a broad sideways pattern, with markets weighing geopolitical risks in the Strait of Hormuz against the recent bond selloff. Investors appear reluctant to push the dollar decisively higher under current conditions.

Institutional Views: Banks See Further Weakness Ahead

In a research note published on August 17, Commerzbank highlighted that since late last year, market pricing for Fed rate hikes has been significantly higher than for other G10 central banks, which had underpinned the dollar. However, this gap has narrowed recently, particularly over the past two weeks as markets have consistently trimmed Fed tightening expectations while other developed economy forecasts have not declined in tandem.

The bank's economists still anticipate three rate cuts in the US next year, and if this trend continues, the dollar will come under renewed pressure. The recent repricing of data and policy expectations has stripped the dollar of its previous "relative rate advantage" support. Commerzbank emphasizes that if markets continue to reduce their Fed hike bets, the dollar could face further losses.

MUFG, in its latest research, notes that recent soft data—including retail sales, nonfarm payrolls, and CPI—combined with falling short-end Treasury yields have undermined dollar support, while a steeper yield curve works against the currency. Markets have significantly scaled back Fed rate hike pricing. MUFG believes that once the hiking window closes following the retreat in inflation, the dollar will depreciate in 2027, and current soft data alongside yield movements already support its forecast of "moderate renewed weakness heading into next year."

Summary

The US dollar index currently trades near 98.85, its lowest level since late May. Declining Fed hike probabilities—down to roughly 33% for September—combined with the Treasury's expanded long-bond repurchase program are jointly suppressing the currency. On the geopolitical front, US-Iran tensions have escalated, but haven demand has failed to provide effective support. As investors simultaneously assess risks in the Strait of Hormuz and digest the ongoing bond market selloff, the dollar lacks clear direction and remains range-bound.

As of 14:16 Beijing time on August 20, the US dollar index was quoted at 98.80.