Why Did the U.S. Dollar Fall to a More Than Two-Month Low?

The U.S. dollar came under pressure in currency markets on August 17, 2026, as markets reassessed their outlook for U.S. interest rates. The move followed economic data pointing to weakness in employment and retail sales, along with moderating inflation.

Dollar Falls to Its Lowest Level Since Early June

The U.S. Dollar Index, or DXY, fell to its lowest level since early June 2026. Available data indicate that the index reached 99.45 after touching 99.30 during trading, but both figures require independent verification from the original source. U.S. sources currently available confirm that the index reached its lowest level since early June.

The dollar declined as traders reduced their bets on another Federal Reserve rate hike after recent economic data showed weakness in some areas of the U.S. economy.

Fading Rate-Hike Expectations Weigh on the Dollar

Recent data on employment, retail sales and inflation affected market expectations for the path of U.S. monetary policy. According to the available data, the probability of the Federal Reserve keeping rates unchanged at its September meeting rose to 67%, up from 48% the previous month.

However, these two figures were not independently verified by a publicly available U.S. source in the available data. They should therefore be treated as figures requiring confirmation from an interest-rate pricing tool or the original source of the report.

Major Currencies Benefit From Dollar Weakness

The dollar's decline coincided with a roughly 0.1% gain in the euro to $1.1578, bringing it close to a two-month high of $1.1585.

The dollar also fell about 0.1% against the yen to around 159.15 yen per dollar, according to Reuters. Meanwhile, the preliminary data cited a slightly different level of 159.055 yen and a 0.2% gain for the yen. The difference may be related to the timing of the readings, so the exact trading time needs to be established.

Markets Await Fed Minutes and Jackson Hole

Investors are turning their attention to the minutes of the Federal Reserve's latest meeting, along with the Jackson Hole economic symposium, for signals that could help determine the direction of U.S. monetary policy going forward.

This comes as markets continue to assess whether the Fed could change its stance on interest rates, particularly after recent economic data led to a decline in rate-hike bets.

Higher Oil Prices Remain a Key Market Factor

Brent crude prices remained near $88.50 per barrel after rising about 6% during the previous week. In later trading on August 17, Brent reached $88.86 per barrel after hitting a high of $89.68.

Oil prices were affected by geopolitical tensions and risks surrounding energy supplies, as traders weighed the possibility of continued supply disruptions against the prospect of the Strait of Hormuz reopening, which could trigger a sharp decline in prices if that happens.

Canadian Dollar and Inflation in Canada

The Canadian dollar recovered after data showed higher-than-expected Canadian inflation. The available data put the annual inflation rate at 3.0%, but this figure was not independently verified through the available publicly accessible U.S. sources and therefore needs to be checked against the original source before being used as a final figure.

The data also indicate that higher oil prices can support the currencies of energy-exporting countries, such as the Canadian and Australian dollars. However, this relationship does not necessarily mean that both currencies actually gained without direct data on their movements at the time of the report.

What Does This Mean for the Dollar Going Forward?

The dollar's direction will depend heavily on developments in U.S. economic data and market expectations surrounding Federal Reserve decisions. So far, the available data provide no indication of a new official decision to hold or raise rates in September; the figures reflect market expectations only.

Oil price movements and developments involving the Strait of Hormuz could also affect inflation expectations, potentially making the Federal Reserve's monetary policy considerations more complicated.