By Yasin Ebrahim

Investing.com — The melt-up in dollar has come unstuck recently as the odds of the Federal Reserve putting its rate hike mission on ice later this year gather pace.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell 0.30% to 101.79

“When it comes to the US, the idea of a Fed pause in the summer is gaining a little traction,” ING said in a note.

Fed members including Chairman Jerome Powell recently laid out the red carpet for two 50 basis point rate hikes at the next two meetings that would provide the central bank with breathing room to reassess the threat of inflation becoming entrenched.

Atlanta Fed President Raphael Bostic was the latest Fed member to back the idea of a Fed ‘pause’ later this year.

“I have got a baseline view where for me I think a pause in September might make sense,” Bostic told reporters Monday following a speech to the Rotary Club of Atlanta.

The remarks arrived on the heels of the Kansas Fed President Esther George, a former arch-hawk, who on Monday “seemed to support the view that the Fed should re-assess the situation after 50bp hikes in both June and July,” ING said in its note.

The cooling expectations for aggressive Fed rate hikes has hurt 2-year Treasury yields, which are sensitive to Fed rate hikes, forcing the dollar to put the brakes on its advance.

While stability in the US rates markets “could start to see volatility levels temporarily edge a little lower,” ING was quick to warn that a prolonged u-turn, or correction, in the greenback was unlikely.

“We favour stability over a sharp correction lower for the broad dollar trend – largely since the Fed has the largest cause of any to be tightening rates sharply,” ING said, noting that the Fed rate hike expectations could change following the central bank’s June meeting.

“This could all change at the next FOMC meeting on 15 June if the Dot Plots were to show 3%+ rates for end-23. But that FOMC meeting is three weeks away.”

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