The US dollar index weakened to the 102 range during Friday's trading (Oct 9), extending the downward pressure seen in the previous session. The greenback's decline coincided with a drop in US Treasury yields following a positive investor response to the auction of 30-year US government bonds. The auction results indicated that demand for long-term debt remains robust, despite the market having previously experienced a significant sell-off.
Falling Treasury yields weighed on the dollar as the appeal of dollar-denominated assets diminished slightly. This environment also allowed other major currencies to strengthen. Meanwhile, investors were also monitoring a drop in oil prices after US President Donald Trump stated that Washington was engaged in "productive discussions" with Iran and would not attack the country prior to the November midterm elections.
Regarding monetary policy, the market currently assigns an approximately 82% probability that the Federal Reserve will hold interest rates steady at its October meeting. Meanwhile, the likelihood of a rate hike in December remains around 81%. These expectations suggest that the market has not entirely ruled out further tightening, though such a move is viewed as more likely to occur toward the end of the year rather than in the immediate future.
Fed Governor Christopher Waller had previously stated that additional rate hikes might be necessary to bring inflation back toward the 2% target. However, Waller also highlighted the debate surrounding the pace of rate increases and acknowledged the possibility of a pause at the October meeting. These remarks have allowed the market to maintain the expectation that the Fed will not rush to raise interest rates in the near term.