Deutsche Bank strategists note that rising US yields and stronger data have pushed market pricing for a Fed rate hike by December to 81%, helping support the Dollar Index. They highlight firmer ISM services and ADP payrolls, alongside higher US inflation swaps, as investors reassess the path of US policy relative to the European Central Bank (ECB) and Bank of Japan (BoJ).

Fed hike odds bolster Dollar outlook

"With oil prices rising again, that led to a renewed bout of concerns around inflation on both sides of the Atlantic."

"For instance, the US 1yr inflation swap (+6.8bps) was back up to 3.18%, whilst the Euro 1yr inflation swap (+6.5bps) was up to 3.05%."

"With that data in hand, the probability of a Fed rate hike by December was up to 81% at the close, up from 71% the previous day."

"And similarly in Europe, the number of ECB hikes priced by December was up to 68bps, up from 65bps the previous day."

"Meanwhile in Japan, markets have also priced in a growing chance of a rate hike, as BoJ Governor Ueda signalled in a speech yesterday that it may need to be considered."

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