Fed repricing lifts US Dollar Index – Deutsche Bank

Deutsche Bank’s Henry Allen and colleagues note that a stronger US CPI print and hawkish Federal Reserve rhetoric triggered a sharp repricing of Fed expectations, lifting the Dollar Index and weighing on EUR/USD. Markets now fully price a 25 bp Fed hike in December and see some risk of 50 bp, while US yields surged across the curve, reinforcing Dollar strength.

Hawkish Fed bets pressure Euro

"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."

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"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.)