Commerzbank: Dollar Weakness Reflects Repricing of the Rate Hike Path

Huoxing Finance reports that on July 30, the Foreign Exchange Research Team at Commerzbank noted that after the Federal Reserve held interest rates steady but revealed significant internal divisions, the U.S. dollar index briefly declined while the euro rose. The weaker dollar tone, combined with market pricing for a September rate hike and rising long-term U.S. Treasury yields, collectively drove the EUR/USD pair higher, reflecting a shift in market expectations for U.S. monetary policy. The bank’s analysts stated: “Three officials voted against the decision, advocating for a 25-basis-point rate hike, highlighting growing concerns over persistent inflation. The market interpreted this decision as less hawkish than implied by the dissenting votes, pushing down U.S. 2-year Treasury yields and the dollar. However, long-term yields rose sharply as investors believed the Fed’s response was insufficient to curb ongoing inflation. Federal funds futures indicate a 63% probability of a 25-basis-point rate hike in September. Market expectations for total rate hikes this year have been revised down from 42 basis points on Tuesday to 33 basis points.” (Jin10)