The US dollar slumped to start September as traders cut bets on a Federal Reserve rate hike this month and a surging yen rippled across global currency markets. The Bloomberg Dollar Spot Index was on track to wrap up the week 0.7% lower after touching its lowest level since May on Thursday. Investors now see roughly even odds of a rate hike at the central bank’s Sept. 16 decision after Fed Governor Christopher Waller pointed to progress on inflation, adding to pressure on the greenback amid lingering concerns over the US fiscal outlook.

In Japan, the yen is on track for its best week since July, gaining 2.7% against the dollar. The move has been fueled by expectations that the Bank of Japan may raise its benchmark rate by a quarter point this month, while leaving the door open to faster hikes thereafter. Noah Buffam, strategist at CIBC Capital Markets, said the dollar stepped back as Fed speak leaned dovish and a yen rally spilled over to the broader USD complex.

Jayati Bharadwaj, head of FX strategy at TD Securities, noted an in-line inflation print would likely help the Fed avoid a September hike, keeping the broader backdrop biased against the USD. Hedge funds and asset managers cut their dollar longs to about $27.6 billion in the week through Aug. 25, down from nearly $50 billion at the end of July. Bank of America recommends selling the dollar against the yen, forecasting the Japanese currency will strengthen to 149 per dollar by year-end.

TD Securities maintains a moderately bearish dollar view for the rest of the year.