Dollar Gains Momentum as Markets Price in Hawkish Fed

The US dollar has gained momentum as markets increasingly price in a hawkish Federal Reserve. According to LiteFinance, there is now a 92% probability that the Fed will tighten monetary policy in September.

This shift in expectations has pushed the 10-year US Treasury yield to 5%, its highest level since 2023. The correlation between the dollar and interest rates continues to strengthen, suggesting that the dollar's rally is being driven more by confidence in the Fed's stance than by uncertainty over administration policy or concerns about the Fed's independence.

The ongoing conflict in the Middle East is also contributing to elevated energy prices, which could feed into core inflation through second-round effects. This increases pressure on the Fed to act quickly and has led markets to expect not only a rate hike but also guidance on the path for monetary policy that follows.