US Dollar Index falls to near 98.00 due to dovish Fed expectations, upcoming CPI eyed

• The US Dollar Index struggles amid signs of weakness in recent US economic data.
• CME FedWatch Tool suggests that markets are pricing in roughly an 89% probability of a Fed rate cut in September.
• Fed Governor Michelle Bowman remarked that three interest rate cuts are likely to be appropriate this year.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is retracing its recent gains and trading around 98.00 during the Asian hours on Monday. Traders will likely watch Tuesday's US consumer inflation data, followed by the release of the preliminary UK Q2 GDP print and the US Producer Price Index (PPI) on Thursday.

The Greenback faces challenges as the soft US economic data prompted traders to price in the possibility of more interest rate cuts this year. The higher Initial Jobless Claims and lower July's Nonfarm Payrolls in the United States (US) have boosted the expectations for a Fed rate cut next month, with another possible move in December. Markets are now pricing in approximately 89% odds of a Fed rate cut at the September meeting, up from 80% a week ago, according to the CME FedWatch tool.

Moreover, Fed Governor Michelle Bowman stated on Saturday that three interest rate cuts are likely to be appropriate this year. Bowman also said that the apparent weakening in the labor market outweighs the risks of higher inflation to come.

On Friday, St. Louis Fed President Alberto Musalem noted that US economic activity remains stable but warned of potential risks ahead, noting the Fed could fall short on both its inflation and employment goals, with particular downside risks to jobs. Musalem emphasized that the Fed is currently balancing risks on both sides of its mandate and stressed that data integrity is critically important to the economy, per Reuters.