USD weakens across board as Fed September rate cut probability surges

The dollar index dropped 0.8% to 103.20 as markets dramatically repriced Federal Reserve rate cut expectations following softer-than-expected US inflation data. Market-implied probability for a September rate cut jumped to 95%, with fed funds futures now pricing in 75 basis points of cuts by year-end. The shift in monetary policy expectations triggered broad USD selling, with EUR/USD rising to 1.0975 and GBP/USD advancing to 1.2850. Asian currencies also benefited, with USD/JPY falling below 150.00 for the first time in three weeks. Treasury yields tumbled, with the 2-year note dropping 15 basis points to 4.35%, further pressuring the greenback. Technical analysis shows the dollar index breaking below its 50-day moving average at 103.50, opening the path toward 102.80 support. Traders are now closely watching upcoming Fed speeches for confirmation of the dovish pivot.