On July 10th, despite ongoing significant internal disagreements within the Federal Reserve regarding the future interest rate path, market traders on prediction platforms overall still lean towards the view that the Fed could implement further rate hikes this year. The latest data from prediction market platform Kalshi shows that, as of now, traders estimate the probability of a Fed rate hike by the end of this year at approximately 54%, slightly down from 56% the previous day. Concurrently, the market expects the probability of a Fed rate hike by July 2027 to be about 62%, with the likelihood approaching 80% for a hike before 2028. Kalshi has launched multiple prediction contracts for the timing of the Fed's next rate hike, betting on whether increases will occur by year-end, before July 2027, and before 2028, with each contract settling once its corresponding time condition is met.
Furthermore, the meeting minutes released by the European Central Bank (ECB) on Thursday revealed that monetary policymakers, during last month's meeting, received forecasts indicating inflation would remain above target until next year, even as the ECB is expected to conduct nearly three more rate hikes. The minutes noted that the longer energy prices stay elevated, the greater the risk they will push up broader inflation through indirect and second-round effects, increasing the danger of the energy shock becoming embedded in core inflation and medium- to long-term inflation expectations. The ECB's Governing Council judged that the current situation no longer fits the description of a "negligible shock" and must be addressed with policy action. ECB official Panetta stated that the ECB is still navigating an uncertain economic landscape. "Upside risks to inflation continue to coexist with downside risks to growth. This requires continuous monitoring of geopolitical developments, energy markets, supply chains, wages, and inflation expectations. It also requires monetary policy to avoid committing to a preset path."
Key data to watch today include Germany's final June CPI year-on-year rate and Canada's June employment change figures.
US Dollar Index
The US Dollar Index experienced a decline yesterday, ending the day with a slight loss and currently trading around 100.80. Aside from profit-taking exerting some downward pressure, the diminishing expectations for a Federal Reserve rate hike were also a significant factor weighing on the index. Additionally, the indication of serious internal divisions within the Fed from the meeting minutes further pressured the currency. Today, focus is on resistance near 101.30, with support found around 100.30.
Euro/US Dollar
The Euro moved higher yesterday, closing with modest gains and currently trading around 1.1440. The primary support for the Euro's rise was the weakening of the US Dollar Index, pressured by factors including cooling Fed rate hike expectations. Additionally, strong economic data from Germany during the session provided some support. Furthermore, the minutes from the ECB's June meeting, which heightened expectations for a September rate hike, also contributed to the currency's strength. Today's focus is on resistance near 1.1550, with support around 1.1350.
British Pound/US Dollar
The British Pound advanced yesterday, closing slightly higher and currently trading around 1.3430. The main driver for the Pound's gain was the weakening of the US Dollar Index, pressured by bearish factors like reduced Fed rate hike expectations. Moreover, easing concerns over UK political uncertainty continued to underpin the currency. Today, attention is on resistance near 1.3500, with support located around 1.3350.
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