Updated

Updated · live.euronext.com · Aug 18

Dollar Holds Near 99.63 as Soft U.S. Data Push September Fed Hold Odds Toward 70%

Updated

Updated · live.euronext.com · Aug 18

Dollar Holds Near 99.63 as Soft U.S. Data Push September Fed Hold Odds Toward 70%

Q: With 30-year yields hitting 2007 highs and job losses mounting, is the Fed walking into a stagflation trap this September?

Not yet, but the risk of a stagflation trap is real if energy-driven inflation hardens before the labor slowdown stabilizes. The Fed is heading into September with a split signal. On one side, the economy is clearly losing momentum: July payrolls fell by 23,000, prior months were revised down by 103,000, wage growth slowed to 3.2%, and labor-force participation dropped to 61.4%. That argues against another rate hike and explains why markets now put roughly a 65%–70% chance on the Fed holding steady. On the other side, inflation risk has not disappeared. Brent crude is near $91, Middle East tensions keep the Strait of Hormuz in focus, and long-dated Treasury yields have climbed to their highest since 2007. That rise in 30-year yields is a warning that investors still demand compensation for inflation and fiscal risk over the long term. It does not necessarily mean the Fed must hike in September, but it does mean the bond market is not convinced inflation is fully under control. That leaves the Fed in a narrow corridor, not yet a trap. If it hikes into a weakening labor market, it risks worsening the slowdown. If it pauses and oil feeds into broader prices, it risks letting inflation re-accelerate. The July FOMC’s 9-3 vote already showed that tension. For September, the most likely outcome is a hold, not because inflation is beaten, but because the labor data have weakened enough to make further tightening hard to justify without another upside inflation surprise.

3 articles · Updated · live.euronext.com · Aug 18

The dollar index edged up 0.09% to 99.63, but the greenback stayed largely range-bound as traders held to expectations that the Fed will pause in September.
July job losses and mild inflation readings have sharply softened rate-hike bets, flipping pricing from a quarter-point increase toward roughly a 70% chance of no move next month.
Against major peers, the euro traded at $1.1576 after touching a two-month high of $1.161, while sterling hovered at $1.3536 near a three-month peak.
The yen weakened to 159.605 per dollar, erasing nearly half of its late-July intervention gains, with traders watching for fresh action and a likely Bank of Japan rate hike next month.
Broader inflation risks still cloud the outlook: the Strait of Hormuz remains effectively shut, Brent held near $91.02 a barrel, and U.S. 30-year Treasury yields hit their highest since 2007.