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Dollar dips as Hormuz deal hopes cut rate hike bets

Traders now see a 58% chance of a September Fed rate hike, down from near full pricing after the prior FOMC decision.

Reported · Written up by our desk · Major Pairs

The US dollar weakened against most major peers as optimism grew that negotiations could soon lead to the reopening of the Strait of Hormuz amid signs of de escalation between the United States and Iran, according to Action Forex.

The same expectations helped ease oil price fears, with oil dropping sharply earlier in the week, which in turn encouraged investors to scale back their rate hike bets. The probability of a September rate hike fell to 58%, and a quarter point for October is not yet fully penciled in, while the chance of a rate increase in October is now around 85%.

Next week, currency traders are expected to focus on US data including Wednesday’s CPI inflation for July, Thursday’s PPI for July, and Friday’s retail sales. Action Forex notes that even if the releases support a firmer dollar, they are unlikely to materially change the broader Fed rate path outlook if progress continues on Middle East negotiations.

The briefing also flags upside risks to inflation readings, given an escalation of hostilities between the US and Iran in July that pushed oil prices higher at that time. It points to a rebound in year on year WTI crude, the potential for PPI to rise via more expensive raw material imports, and a rebound in the ISM non manufacturing PMI prices subindex as additional support for higher CPI and PPI outcomes.

Latest closeWTI crude $78.07 ▲3.8%

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