Dollar Surges as Treasury Yields Climb Above 5%
The USD/JPY currency pair is experiencing a significant recovery after reaching a seven-month low. The U.S. dollar has surged to its highest level in almost two weeks against major peers ahead of the Federal Reserve rate decision and the Bank of Japan meeting later this week.
The market is increasingly convinced that the Fed will hike rates on Wednesday, with CME FedWatch pricing in a 92% probability of a 25-basis-point rate hike, taking rates to 3.75%-4%. This is up from 85% yesterday, and markets are also pricing in a 53% chance of another hike at the October meeting.
The dollar's rise has been fueled by renewed gains in oil prices, which have pushed Treasury yields higher, reinforcing expectations for tighter U.S. monetary policy. The 10-year Treasury yield has climbed above 5% for the first time since 2007 as Brent crude hits $107 a barrel.