Fed Rate Hike Expectations Drop 21% as Dollar Weakens

Dovish Fed signals and dissenting votes drive EUR/USD gains. Market cuts annual hike expectations to 33bps, with 63% probability of September action.

Woofun AI reports that Deutsche Bank analysts attribute recent US Dollar weakness to a repricing of the interest rate trajectory following the Federal Reserve's decision to hold rates steady. Despite three officials dissenting in favor of a 25 basis point increase due to persistent inflation concerns, the market interpreted the overall stance as less hawkish than anticipated. This sentiment shift caused the US Dollar Index to decline while the Euro strengthened, alongside a drop in 2-year Treasury yields. Conversely, long-term yields rose as investors viewed the Fed's inaction as insufficient to curb inflation. Federal funds rate futures now price in a 63% probability of a September hike, with expected cumulative annual hikes falling from 42 basis points to 33 basis points.