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Dollar drifts as Fed hike odds rise, while ECB tightening lifts euro
Traders are pricing a 60.0 percent chance of a Fed rate hike for the Sept. 15-16 meeting after a stronger-than-expected jobs report, while Reuters economists expect the ECB to raise its deposit rate by 25 basis points to 2.50 percent.
The US dollar stayed stuck in a cross-current as markets weighed rising expectations for a Fed hike against support for the euro from ECB tightening, with traders looking ahead to US inflation data, according to Yahoo Finance.
After a stronger-than-expected employment report, the market-implied odds for a Fed rate hike at the September 15-16 meeting rose to 60.0 percent, and attention is shifting to whether a more hawkish inflation reading will reinforce the case for further tightening. Fed Governor Waller said the next steps will depend on upcoming inflation trends.
On the other side, the euro is being driven by the ECB, where all 65 economists in a Reuters poll expect a 25 basis point increase in the deposit rate to 2.50 percent. Eurozone inflation has climbed to 3.3 percent, with the article citing high energy prices tied to the Iran conflict.
The dollar index has struggled to advance despite the Fed narrative, with a strong yen carry trade unwind pulling the greenback lower amid speculation of Bank of Japan tightening, the outlet said. The piece also notes spillovers from tensions in the Middle East that are strengthening MENA currencies, and highlights that sterling may be volatile around forthcoming Bank of England policy updates tied to the energy crisis and global bond yields.
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