Fed Hints at Rate Hike as Oil Prices Rebound

The US Federal Reserve is widely expected to leave interest rates unchanged for the fifth consecutive meeting in July, but there's a considerable chance of an unexpected rate hike.

The CME FedWatch Tool shows that markets are pricing in a nearly 30% probability of a 25 basis points (bps) interest rate hike, up from just 15% a week ago.

Crude oil prices have rebounded recently, rising 20% this month after falling about 35% from May to the end of June. This has reignited inflation concerns and increased the likelihood of a Fed rate hike.

Analysts at OCBC note that the perceived risk of near-term Fed tightening has shifted meaningfully recently, with the probability of a July Fed rate hike rebounding to 35% from just 10% following benign US inflation data.