US dollar falls to 10-week low as weak economic data weighs on Fed rate outlook

• 10-year US Treasury yield drops to around 4.68% after retail sales, employment figures signal softer economic activity

The US dollar fell to its lowest level in about 10 weeks on Monday as weak retail sales and employment data lowered market expectations that the Federal Reserve would raise interest rates at its September meeting.

The dollar index, which measures the greenback against six major currencies, dropped around 0.3% to 99.19, its lowest level since June.

The yield on the benchmark 10-year US Treasury note also fell to around 4.68%, reflecting expectations of a less restrictive monetary policy outlook.

US retail and food service sales fell 0.6% month-on-month in July, reversing a 0.2% rise in June and showing their first decline since last October.

Nonfarm payrolls, meanwhile, shrank by 23,000 in July, while the unemployment rate stood at 4.1%.

The figures reinforced concerns that elevated borrowing costs and living expenses are weighing on consumer demand and labor market conditions.

Expectations of lower interest rates tend to reduce the appeal of dollar-denominated assets by lowering their prospective returns.

The weaker dollar and lower bond yields supported risk-sensitive assets, with the S&P 500 ending last week at a record high.

Gold also advanced Monday as investors assessed the prospect of a less hawkish Fed alongside continued geopolitical risks in the Middle East.

Markets are now awaiting the minutes of the Fed’s July 28-29 meeting for further indications about policymakers’ assessment of inflation, employment, and the future course of interest rates.

At that meeting, the Fed kept its policy rate unchanged at 3.5%-3.75%.

Despite weakening US demand, renewed increases in oil prices could revive inflation concerns, potentially reversing the decline in Treasury yields and the dollar.