Fed funds futures price a 43% chance of a 25bps hike in July as sticky inflation and labor resilience support the USD.
The US Dollar strengthened as rising oil prices lifted inflation expectations, reinforcing hawkish Federal Reserve policy bets. Fed funds futures now assign a 43% probability of a 25bps rate hike at the July 29 FOMC meeting, targeting a range of 3.75-4.00%, with nearly 50bps of tightening priced in by year-end.
Sticky US inflation, a resilient labor market, and economic outperformance relative to peers are sustaining the Fed’s hawkish stance. Core inflation remains elevated, with Fed Governor Christopher Waller warning of potential near-term tightening if upcoming data surprises to the upside.
June CPI data, due today, will shape rate expectations. Headline CPI is forecast to decline 0.1% month-over-month, while core CPI is expected to rise 0.2%, easing slightly year-over-year. Bond yields climbed across the curve, pressuring equities as markets brace for further USD gains.