Markets price in 83% chance of Fed rate hikes by December as inflation expectations rise before key PCE release.
The US Dollar Index (DXY) extended its four-day rally, trading at 101.60 in European hours, near its highest level since April 2023. The move follows hawkish signals from Federal Reserve officials, reinforcing expectations for tighter monetary policy amid persistent inflation concerns.
Markets now assign an 83% probability of rate hikes by year-end, per the CME FedWatch tool, up from 70% a week ago. The shift comes ahead of May’s Personal Consumption Expenditures (PCE) data, with headline inflation forecast at 4.1% YoY, up from April’s 3.8%, and core PCE expected at 3.4%.
US 10-year Treasury yields steadied near 4.1%, holding at six-week lows after a 10-basis-point drop Wednesday. The decline followed reports of progress in US-Iran talks, easing oil prices and inflation fears.