Rate Hike Probabilities Soar as Trump's Timeline Repricing Takes Center Stage
Market interest rate expectations underwent significant changes this week, driven by events at the UN General Assembly and US PMIs. Oil prices initially fell due to hopes of a de-escalation in the Iran war, easing inflation concerns and leading to minor dovish repricing across major central banks.
However, Trump's statement that the US would make a deal with Tehran after the November elections sent oil prices rising again as markets began to reprice the estimated timeline for conflict resolution. This triggered a hawkish repricing that largely erased prior bets on rate hikes.
On Wednesday, the Federal Reserve saw its rate hike probabilities increase, with traders expecting the central bank to bring forward rate hikes in response to a stronger-than-expected US PMI report. The probability of a rate hike in October rose to 70%, with traders focusing on the Fed's 'timelier return to the 2% target'.
Looking ahead, market attention remains fixed on US-Iran developments, particularly following reports of a potential phased deal to reopen the Strait of Hormuz. A breakthrough in negotiations would likely send oil prices lower, while a prolonged stalemate or re-escalation could maintain market support.