The dollar is sliding, and traders are starting to think the slide is not over.
One-month options are now pricing against the US currency, something traders have not seen since late February. That means traders are paying to bet the dollar will keep falling over the next month.
The US currency hit a three-month low as investors lowered the odds of another Federal Reserve rate hike. Traders now see only about a one-in-three chance of a move, a sharp drop from the 75% odds priced in late July.
The Bloomberg Dollar Spot Index, which tracks the dollar against a basket of major currencies, fell for a third straight session. It reached its lowest point since May 15, dropping as much as 0.3% before trimming to a 0.1% decline by 4:10 p.m. New York time.
The dollar is tied to a huge share of global trade, from oil contracts to electronics. So when it slides, the effects reach far beyond currency traders.
Behind the slide is a stretch of soft economic data. July hiring came in weak, inflation cooled, and retail sales disappointed.
Together, those reports convinced many investors that the Fed does not need to raise rates again next month.
The logic is simple: when the Fed hikes, the dollar tends to strengthen because higher rates make dollar-based investments more attractive. When hikes look less likely, the dollar loses some of that pull.
Some of the selling is also about traders closing out winning bets. Erik Nelson, a strategist at Wells Fargo Securities, said the market is seeing "continued unwinds of lingering dollar longs" while the prospect of a Fed increase this year continues to fade.
A dollar long is a bet that the currency will rise, so unwinding those bets means selling dollars. Figures from the Commodity Futures Trading Commission, covering the week ending August 11, show that non-commercial traders, a group that includes hedge funds and other speculators, trimmed their bets on a stronger dollar.
Two events could decide whether the dollar keeps sliding or bounces back. Friday brings the latest purchasing managers' index, or PMI, from S&P Global, a survey that measures whether business activity is expanding or shrinking.
Andrew Hazlett, a foreign-exchange trader at Monex Inc., said the market is watching that report to see if the trend continues, since stronger data could help reverse the dollar's slump. He also pointed to the Federal Reserve's meeting minutes on Wednesday, though he expects them to matter less.
Then comes Jackson Hole. Fed Chair Kevin Warsh is scheduled to speak at the annual symposium later this month, and his appearance is getting extra attention for two reasons.
First, Warsh refuses to offer forward guidance, meaning he will not tip his hand about future rate moves. That has left many investors guessing.
Second, Fed chairs have a history of using Jackson Hole to announce big policy shifts. Kristina Hooper, chief market strategist at Man Group, said the meeting is crucial because it has become the traditional stage for a Fed chair to unveil bold policy changes.
She added that this year is especially significant because the new Fed chair remains an unknown quantity.
For everyday investors, the dollar's path matters more than it might seem. A weaker dollar can make imported goods and overseas trips more expensive, while giving US exporters a small tailwind.
The same reports that move the currency - jobs, prices, consumer spending - are the ones that signal whether the Fed will keep pushing rates higher. When those numbers come in soft, the dollar feels it, and when they come in strong, the slide could reverse just as quickly.