Markets price over 55% odds of a 25 basis points Fed rate hike in 2026 amid geopolitical tensions and inflation concerns.
The USD/CAD pair stabilized above mid-1.3700s, near its highest level since mid-April, as the US Dollar strengthened. The USD Index (DXY) reached a fresh peak since early April, supported by persistent geopolitical risks and expectations of tighter US monetary policy.
Geopolitical tensions, including stalled US-Iran talks and concerns over the Strait of Hormuz, kept safe-haven demand for the USD elevated. Meanwhile, crude oil prices near monthly highs fueled inflation worries, reinforcing bets for a Fed rate hike. Traders now see a 55% chance of at least a 25 basis points increase in 2026, per the CME Group’s FedWatch Tool.
Higher US Treasury yields further bolstered the dollar, though caution ahead of the FOMC Minutes limited further gains. Bullish oil prices provided some support to the Canadian Dollar, capping the pair’s upside.