US Dollar Index rises as markets reprice Fed outlook – Deutsche Bank

A stronger US CPI reading, alongside hawkish Federal Reserve rhetoric, prompted a sharp reassessment of Fed expectations, according to Deutsche Bank’s Henry Allen and colleagues. The Dollar Index rose as EUR/USD came under pressure. Markets now fully price in a 25 bp Fed rate increase in December, with some risk of a 50 bp move, while a surge in US yields across the curve provided further support for the Dollar.

Euro Comes Under Pressure as Hawkish Fed Expectations Build

"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.)