The dollar index maintained its position around 105.3 on Thursday, stabilizing after touching a three-week low in the previous session. This stability comes amidst weak US economic data that has strengthened expectations for Federal Reserve interest rate cuts.

Recent data revealed unexpected contraction in US services activity for June, highlighting signs of a slowing economy. Moreover, private employment growth fell short of forecasts, further underscoring concerns about economic momentum. These indicators have bolstered market bets that the Fed will adopt a more accommodative stance to support growth.

Minutes from the Federal Reserve's June policy meeting indicated a division among members regarding the duration of maintaining the terminal rate, while also emphasizing a cautious approach towards immediate rate cuts. The committee acknowledged the need for potential adjustments but suggested patience in assessing economic conditions, awaiting further clarity from upcoming data releases such as the nonfarm payrolls report.

Investor sentiment towards the Fed's monetary policy has shifted notably, with markets now pricing in approximately a 68% chance of a rate cut in September, up from about 56% a week ago. This adjustment reflects growing expectations for monetary easing in response to weakening economic indicators.

Despite the dollar's overall weakness across major currencies, it remains near 38-year highs against the Japanese yen, underpinned by relative economic resilience and safe-haven demand amidst global uncertainties.

In conclusion, the dollar index stabilizing around 105.3 reflects market reactions to US economic weaknesses and evolving expectations regarding Federal Reserve monetary policy. As investors await further clues from upcoming economic data releases and Fed communications, the trajectory of the dollar will likely hinge on developments in economic indicators, geopolitical events, and monetary policy signals.

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