Heightened geopolitical tensions and rising Treasury yields boost USD, with markets pricing a 52% chance of a Fed rate hike in September.
The USD/CHF pair climbed to 0.8110 in early European trading Tuesday, extending gains for a second day as the US Dollar rebounded from intraday losses. A sharp rally in crude oil, driven by geopolitical risks, pushed Treasury yields higher, fueling speculation the Federal Reserve may raise rates sooner than anticipated despite cooling labor data.
Markets are now pricing a 52% probability of a 25-basis-point Fed hike in September, up from 44.4% a day earlier. Analysts note core CPI would need to exceed 0.3% month-over-month in July to solidify expectations for a September move, above the 0.2% consensus forecast.
Recent easing in oil prices, amid hopes for the Strait of Hormuz reopening, has tempered expectations for a sustained pullback. Analysts suggest the USD may remain rangebound as the bar for a Fed hike stays high, supporting carry trades despite volatility in energy markets.