Global Currency Markets Stabilize After Dollar Surge; Fed Rate Hike Odds Drop
Translated & summarized from Calcalist by baba
Global currency markets stabilized after a dollar surge, with the dollar trading just above 3.05 shekels in Israel. Odds for a US Federal Reserve interest rate hike have decreased significantly due to recent inflation and labor data, according to an economist.
The story in 4 lines · by baba
- Dollar stabilized globally and in Israel after previous day's gains.
- Odds for a US Federal Reserve rate hike have dropped significantly.
- Inflation pressures are not yet strongly impacting core inflation.
- Consumer demand may be too weak to pass on all cost increases.
Currency markets showed stability on Tuesday, following a strong performance by the US dollar the previous day. In Israel, the dollar weakened by 0.1%, trading just above 3.05 shekels, while the euro was also slightly up, trading above 3.42 shekels.
Globally, the US dollar index, which measures the dollar against a basket of major currencies, remained unchanged at 102.1 points. The dollar had reached a high of 102.53 points on Monday, its highest level since April 10, 2025, before a slight retreat. The euro, which had fallen to a 17-month low on Monday, gained 0.1% to trade slightly above $1.12. The British pound held steady, trading just above $1.32, and the dollar was unchanged against the Japanese yen at 157.9 yen.
Alex Zabezhinsky, Chief Economist at Meitav, noted in his weekly review that inflation pressures in the US and Europe are not strong enough to warrant an interest rate hike by the Federal Reserve. He expressed doubt that a rate hike would occur by the end of the year. Zabezhinsky pointed out that recent inflation and labor market data have significantly reduced the probability of a Fed rate hike at its upcoming October 28 meeting, from 70% to 20%. While the market still anticipates an 80% chance of a hike at the December 9 meeting, he remains skeptical.
Despite signs of increasing price pressures along the supply chain, including rising import and producer prices, Zabezhinsky stated that these increases are not yet significantly impacting core inflation. Core inflation, while still above the target, remains stable. In the US, core inflation based on the PCE index has been stable, with a downward trend observed in the three- and six-month annualized changes. Median inflation measures for both CPI and PCE are also gradually moderating. Zabezhinsky suggested that consumer demand may not be strong enough for companies to fully pass on cost increases to consumers. He added that inflation expectations in the bond market have barely risen in the past month, and have even decreased in some countries.