The US dollar is having a rough August. The dollar index, which measures the greenback against a basket of major currencies, slid to approximately 99.5 on August 17, dropping about 0.17% in a single session and touching its weakest level in three months. The culprit is a familiar one: Wall Street is quietly walking back its bets that the Federal Reserve will keep tightening.
A month ago, traders were split almost evenly on whether the Fed would raise rates in September. Now, market pricing puts the probability of the Fed holding steady at roughly 67%. That kind of swing in sentiment, in just four weeks, is enough to move currencies in a meaningful way.
What changed the math
The Fed’s July 29 meeting set the stage. Policymakers voted 9-3 to hold the federal funds rate at its current target range of 3.50% to 3.75%, keeping policy unchanged after a series of cuts in late 2025 had brought rates to that level. The three dissenters wanted a 25 basis point hike.
What softened the hawkish case was the data that followed. July’s jobs report showed diminished payroll gains alongside downward revisions to prior months, painting a picture of a labor market that is cooling faster than some expected. Inflation figures and consumer spending numbers came in muted as well, stripping away the urgency that had kept rate-hike odds elevated through much of the summer.
Earlier in the year, energy prices and geopolitical friction in the Middle East had kept inflation hawks on edge, supporting the argument for further tightening. That argument has become harder to make when the underlying economic data keeps coming in soft.
Eyes on Jackson Hole
The next major test arrives at the annual Jackson Hole economic symposium, where Fed Chair Kevin Warsh is expected to speak. Markets will parse every word for signals about whether the three dissenters in July represent a growing faction or a minority view that gets outvoted again in September.
The release of the July FOMC meeting minutes is also on traders’ radar. Those documents tend to reveal the texture of the internal debate in ways that the post-meeting statement doesn’t, and any hint that the committee is shifting toward a more patient posture would likely add further pressure on the dollar.
For context, the dollar index had been holding above the 100 level for much of the earlier part of 2026, supported by expectations that the Fed would resume hiking after its late-2025 cuts proved premature in the face of sticky inflation. The break below 100 is not catastrophic, but it is a signal that the narrative is shifting.
A weaker dollar carries ripple effects well beyond the foreign exchange market. Commodities priced in dollars, including oil, gold, and agricultural products, tend to become cheaper for buyers using other currencies when the dollar falls. That dynamic can lift commodity prices and, by extension, influence inflation readings in a way that complicates the Fed’s calculus further.
The broader risk landscape remains complicated. If oil prices spike again or inflation data surprises to the upside before the September 16-17 FOMC meeting, the calculus could flip back quickly. The three dissenters from July’s vote are a reminder that the committee has not reached consensus, and a single strong inflation print could resurrect the hike argument in a hurry.