Investors see limited CPI impact on carry trades, but rising Treasury yields and tech debt issuance pose risks to the current calm.
Foreign exchange volatility is declining as markets price a 50% chance of a 25-basis-point Federal Reserve rate hike in September. The upcoming US July CPI release is expected to have minimal effect on carry trades, though Fed policy risks remain in focus.
The dollar index (DXY) is trading in a tight 99.50-100.00 range, reflecting investor comfort with the Fed’s potential hold or tightening. Recent data points, including inflation figures, will shape the September decision, but positioning appears stable for now.
Rising longer-dated US Treasury yields and a surge in tech-sector debt issuance, including Nvidia’s $500bn financing plan, could disrupt the benign environment. A bond market sell-off remains a key threat to the current low-volatility backdrop.