The dollar weakened across the board as a run of soft US economic data cut the probability of a Federal Reserve rate increase in September to 35 percent from 52.2 percent a week earlier, while Treasury yields at the long end climbed to multi-decade highs on fiscal concerns.

Rate expectations reset

The CME FedWatch tool shows traders now assign a 35 percent chance of a September hike, down from 52.2 percent seven days ago. The repricing follows July retail sales that fell for the first time in nine months, unexpected job losses in the same month, and inflation readings that came in mild. The euro held near a two-month high at $1.1581, while sterling traded at $1.3548, a whisker from its three-month peak.

Fiscal worries drive long-end yields

The 30-year Treasury yield hovered near its highest level in almost 20 years and the 10-year Japanese government bond yield reached its highest since September 1996. Recent US auctions have cleared only at multi-decade yields, reflecting what Ameriprise Financial chief market strategist Anthony Saglimbene called growing investor concern about "the growing amount of US debt and America's lack of fiscal discipline." He said frequent large-scale auctions give the bond market a chance to push back against the government's eroding fiscal trajectory.

Geopolitics keep oil bid

Brent crude futures rose 0.3 percent to $91.14 a barrel, the highest since July 30, with the Strait of Hormuz effectively shut and talks to end the US-Iran conflict at an impasse. Analysts remain cautious on inflation's path given the supply disruption.

Yen intervention gains erased

The yen traded at 159.46 per dollar, having given back nearly half the gains from the joint US-Japan intervention at the end of July that had lifted it from 40-year lows. The Bank of Japan meets next month and is set to raise interest rates, with sources telling Reuters the central bank is considering more aggressive hikes after that. The Australian dollar firmed 0.11 percent to $0.71119, its strongest since early June, while the New Zealand dollar sat at $0.5902.