[MARKET ANALYSIS] USD gains amid the risk-off mood and bets for an October Fed rate hike

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[MARKET ANALYSIS] USD gains amid the risk-off mood and bets for an October Fed rate hike

[MARKET ANALYSIS] Treasury futures remain pressured on oil-related inflationary concerns

Japan's Chief Cabinet Secretary Kihara says the government may consider a provisional budget to prepare for unforeseen circumstances

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DXY: +0.2%

  • Mildly gained against its peers amid the risk-off mood owing to the conflict in Iran and US President Trump's 48-hour ultimatum, which expires on Monday evening, while the greenback is also helped by hawkish Fed bets, with money markets now pricing more than a 50% likelihood that the Fed will hike rates in October.

EUR/USD: -0.2%

  • Marginally weakened in rangebound trade amid a slightly firmer buck and with ECB officials recently noting inflationary risks from the energy shock. Furthermore, there was little reaction to local elections in France and Germany, with mixed results for the French far-right RN as it won in smaller cities, but lost in big targets such as Marseille and Toulon, while German Chancellor Merz's Conservatives secured a victory in Rhineland-Palatinate to end the Social Democrats' 35-year grip on the state.

GBP/USD: -0.2%

  • Lacks demand with UK PM Starmer to hold an emergency meeting of senior officials to discuss the cost of living this week, while Iran's Foreign Minister warned on Friday that UK PM Starmer is putting British lives in danger by allowing UK bases to be used for aggression against Iran.

USD/JPY: +0.2%

  • Gradually extended gains amid a firmer buck and as the JPY continues to weaken on oil-related concerns, which prompted plans by Japan to spend around JPY 800bln from budget reserves to curb gasoline prices.

Antipodeans: AUD/USD -0.6% / NZD/USD -0.3%

  • Underperformed due to the risk-off mood and their high-beta properties, with price action not helped by a lack of data and after the PBoC set a weaker-than-expected yuan fix.

Context

The USD is gaining ground amid a risk-off sentiment driven by geopolitical tensions in Iran and increased speculation around a potential rate hike from the Fed in October. This positions the greenback favorably against major currencies like the EUR and GBP, although the softer risk appetite is negatively impacting the Antipodeans, which are more sensitive to global market fluctuations.

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