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Dollar trades mixed as Fed-cut pressure clashes with rate-hike odds

Scotiabank said swaps still price about a 60% chance of a 25 bps Fed hike for the September meeting, with US PPI and CPI due ahead of the decision.

Reported · Written up by our desk · Major Pairs

Scotiabank strategists Shaun Osborne and Eric Theoret said the US dollar is showing mixed performance as markets weigh competing forces, including rising oil prices, a firmer Japanese yen, and escalating US trade tensions.

They pointed to political pressure on the Federal Reserve to cut rates, after President Trump signaled demands for easier policy amid trade friction, while Vice President Vance also urged the Fed to ease last week.

At the same time, the strategists said market pricing continues to lean hawkish, with swaps around a 60% chance of a 25 bps rate hike at the September meeting, and upcoming US Producer Price Index and Consumer Price Index data viewed as decisive for policy. Cleveland Fed President Hammack also called for tighter policy ahead of the FOMC blackout, according to the note.

Scotiabank added that the dollar backdrop includes support from firmer US yields and a slightly steeper Treasury curve, but is being offset by geopolitical and trade pressures as well as oil-linked risk sentiment, including Brent nearing $100 after attacks on Saudi oil infrastructure.

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