US Dollar Index gains as Fed expectations are repriced – Deutsche Bank

A 25 bp Fed rate hike in December is now fully priced in. Markets also see some risk of a 50 bp increase. According to Deutsche Bank’s Henry Allen and colleagues, stronger US CPI data and hawkish Federal Reserve rhetoric prompted a sharp reassessment of Fed expectations, driving the Dollar Index higher and putting EUR/USD under pressure. A surge in US yields across the curve added support to the Dollar.

25 bp Fed hike priced in as Euro comes under pressure

"That impact was clear from market pricing, with the amount of hikes for a December up from 21.0bps on Monday to 27.7bps by last night’s close, and 28.5bps this morning."

"So in other words, a 25bp hike is fully priced in, with futures also pricing in a 14% chance of a larger 50bp move."

"Indeed, the rate priced in for the September 2027 meeting was up +22.3bps yesterday, so investors had priced in almost a full additional rate hike to next year’s path."

"For markets, the clearest impact could be seen in US Treasuries, with yields surging across the curve."

"Meanwhile, DB’s own US economists have updated their Fed view, adding a rate hike in January to their profile."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)