US Dollar Rates Stabilize Amid Elevated Fed Hike Odds

US dollar rates are unlikely to see significant upside in the near term due to elevated Fed hike odds, according to DBS Group Research economist Eugene Leow. The upcoming US CPI data will be crucial for the FOMC's September decision on policy, with a benign inflation print likely to nudge market participants towards further tightening.

In his analysis, Leow notes that recent labour market data has kept Fed hike bets elevated, with around 60% chance of a hike in September. However, investors remain cautious due to the benign inflation prints, which have seen increases in the transport component proving surprisingly muted.

Leow also points out that frontend USD rates are adequately priced for a hawkish Fed, with the 2-year rate already trading around 4.4%. He believes that a strong CPI print would likely lead the market to frontload the hike cycle, rather than price in even more hikes.