Markets reduce September Fed hike odds to 35% after softer PPI data, supporting risk assets and carry trades.
Markets trimmed bets on a September Federal Reserve rate hike to 35% after July’s softer-than-expected Producer Price Index data, easing pressure on the US Dollar. Lower US Treasury yields and a stable risk environment further bolstered carry trades, though oil prices held near USD 80 per barrel.
Prior to the PPI release, rate hike expectations stood at 55%, following last week’s labor market report. Analysts caution that persistent inflation or strong employment data could revive tightening risks, keeping the Fed’s path uncertain.
A range-bound USD and constructive risk backdrop continue to favor carry trades, despite volatility in oil markets and potential FX intervention risks for JPY. However, rising long-term US yields—driven by fiscal deficits and AI-driven investment demand—pose a key threat to this dynamic.