Dollar Pulls Back as Hawkish Bets Stabilize Ahead of Key CPI Report
The US dollar has been experiencing a pullback across various currency pairs, including the EUR/USD. This is due to profit-taking as the market adjusts its expectations following a hawkish repricing of the Fed's interest rate hike probabilities. According to traders, there is currently a 58% chance of a rate hike in September.
However, a soft Consumer Price Index (CPI) report next Friday could potentially bring these probabilities below 50%, which might deter the Federal Reserve from hiking rates at their upcoming meeting. On the other hand, if the CPI numbers are strong and the probabilities remain above 50%, the Fed may be forced to hike interest rates regardless of potential economic consequences.
The European Central Bank (ECB) is widely expected to raise interest rates by 25 basis points at its next meeting, bringing the policy rate to 2.50%. ECB sources confirm that the central bank is prepared to increase rates in September but has little appetite for further tightening afterwards.