As investors considered the prospects for U.S. rates following a robust employment report last week that shattered hopes for significant rate reduction and escalated tensions in the Middle East dampened risk sentiment, the dollar held at seven-week highs against major currencies on Tuesday.
This year, traders’ expectations of monetary easing from the Federal Reserve have radically changed.
According to the CME FedWatch tool, markets are now assigning an 86% chance of a 25 basis point reduction in rates in November, rather than fully pricing in a cut. By December, only 50 basis points of easing are priced in, compared to over 70 basis points a week earlier.
Because of this, the dollar has maintained its lead and surged to a multi-week high versus the euro.
