Dollar Falls to May Low as Emerging Market Currency Index Hits Record High
Nashnova编辑部
The Bloomberg Dollar Spot Index fell for a third straight day to its lowest since mid-May, with the implied probability of a September rate hike plunging from 75% to 30%; the MSCI EM Currency Index hit an all-time high as capital accelerates back into emerging markets.
Why is the dollar suddenly sliding?
The Bloomberg Dollar Spot Index dropped for a third consecutive session on August 17, touching its lowest since May 15; DXY fell near 99.50.
The core driver: a rapid repricing of Fed hike expectations. CME FedWatch shows the implied September hike probability plunged from roughly 75% to 30%.
This means → the market has swung from "almost certain September hike" to "probably not," pulling away a major pillar of dollar support.
The interest-rate swaps market — where traders bet on future rate moves — now fully prices only a 25 bp hike in January. A week ago that expected hike date was year-end.
Which data releases broke the hiking case?
Nonfarm payrolls: July employment fell by 23,000; consensus was a gain of 80,000. May and June were revised down by a combined 103,000.
CPI and PPI both came in soft, putting inflation back on a downward track; retail sales fell 0.6% m/m, ending nine straight months of gains.
In plain terms = jobs, prices, and spending all came in cold within two weeks, dismantling the case for another hike point by point.
The Citi U.S. Economic Surprise Index and the dollar show a 20-day correlation of 0.85 — when data misses, the dollar drops almost in lockstep.
Why are emerging markets rallying in response?
The MSCI EM Currency Index rose 0.2% intraday to 1,906.98, an all-time high; the EM equity index gained 0.6% alongside it.
Wee Khoon Chong, senior market strategist at BNY Mellon Asia-Pacific, said: "We are seeing large-scale foreign capital flowing back into EM, especially Asia."
This means → as Fed hike expectations cool, EM's relatively higher yields stand out again, reviving the appeal of the carry trade — borrowing in low-rate currencies to buy higher-yielding assets.
How far have the euro and yen moved?
EUR/USD broke through 1.1577, clearing its 100-day moving average.
USD/JPY pulled back to around 159.
Options markets sent a clear signal too: one-month risk reversals flipped to bet on dollar depreciation for the first time since late February.
What comes next?
Wednesday (August 20): the Fed publishes minutes from its July meeting — where three regional Fed presidents voted in favor of a hike. The language will reveal how deep the internal split runs.
ING's global head of markets Chris Turner noted: if the minutes suggest "the decision to hold was closer than most assumed," it will be hard for the market to swing fully back to hawkish.
Friday's PMI data is the other variable: if U.S. PMI shows the growth advantage widening, it could offer the dollar some relief. The market currently prices only about 36 bp of remaining hikes across the entire tightening cycle.
Content is for reference only, not financial advice.