Fed funds futures now show a 66.9% chance the Federal Reserve holds rates at 3.50-3.75% on September 16, down sharply from expectations of a hike two weeks ago. Softer inflation, weaker jobs, and falling retail sales are behind the shift, and the Dollar Index is now testing a support level that could decide its next big move.
Why September hike odds collapsed
US consumer prices rose just 0.1% in July, cooling the annual rate to 3.4%. Core inflation, which strips out food and energy, slowed to 2.5% — near where it stood before the current Middle East conflict pushed energy prices higher. Producer prices told a similar story: headline PPI was unchanged in July. The core measure excluding food, energy and trade services, however, rose 0.4% month over month, partly reflecting stronger financial-services prices. Together, the reports gave the Fed a clean reason to hold rates steady in September rather than tighten further.
Weaker jobs and spending complicate the outlook
But the bigger question is whether the Fed's tightening cycle is over or merely delayed. US employers cut 23,000 jobs in July, with earlier months revised sharply lower. Retail sales fell 0.6% month over month. Three Fed policymakers dissented at the July meeting in favor of higher rates, and Cleveland Fed President Beth Hammack still argues inflation risk warrants immediate action. Yet markets increasingly see weakening employment as a limit on how far the Fed can go, even if oil-driven inflation risk returns.
Probability-weighted pricing across coming meetings resembles a hump rather than a runway, according to ActionForex, with expected hikes climbing from a third of a hike in September to roughly one and a half by mid-2027 before easing back down. No single scenario — holding, one hike, or more — crosses a 50% probability on its own.
Dollar Index tests a key support level
The Dollar Index's rebound attempt last week was rejected at the 55 4H EMA, now at 99.92, keeping the pullback from the recent 99.41 low looking like consolidation within a larger decline. A clean break below 99.41 would violate the 38.2% retracement of the move from 95.55 to 101.80 and open the door to 97.93, with a return to 95.55 a real possibility further out. A firm break back above 100.08, however, would weaken that bearish case and revive the near-term bullish picture.
Source: ActionForex
Trading involves risk.
Risk Disclaimer
