Fed Hike Odds Hit 56% as Dollar Index Holds 100.45 Support
Market probability for an October Fed rate rise jumps to 56%, driving the dollar index to 100.45 while euro and pound diverge.
Key points
- CME FedWatch shows 56% odds for an October Fed rate hike, up from 43.5% last week.
- The dollar index trades at 100.45, holding above 100.33 support with 100.53 as key resistance.
- Bank of England signals potential hikes, with swaps showing 65% odds for a November increase.
Market probability for an October Federal Reserve rate hike rose to 56% from 43.5% last Wednesday. This shift in expectations strengthened the U.S. dollar index to 100.45 on Monday.
St. Louis Fed President Alberto Musalem stated that inflation will stay above target for a prolonged period. He argued that further policy rate increases are appropriate for the current economic environment.
Diverging Policy Paths for Euro and Pound
The European Central Bank raised rates in July but officials downplayed the need for larger hikes. Falling energy prices are expected to ease inflation, reducing the pressure for additional tightening.
The Bank of England held rates at 3.75% but signaled potential increases if energy supply issues persist. Three-month inflation swaps show a 65% probability of a November rate hike.
Dollar Index Technical Levels Remain Key
The dollar index trades above a rising trendline and the 100.33 support level. A break above 100.53 resistance would open the path toward 100.68 and 100.83 targets.
Sellers could target 100.19 and 100.04 if the current bullish trend reverses. The 100.33 level remains the critical floor for maintaining the recent upward momentum.
Sterling Holds Support Amid Mixed Signals
GBP/USD trades at 1.3372 above the 1.3365 support level on the two-hour chart. The pair forms higher lows from 1.3336, suggesting bearish momentum is fading.
Breaking 1.3405 resistance would confirm a bullish trend and activate higher targets. Failure to hold 1.3365 would expose the pair to declines toward 1.3336 and 1.3307.
