The Hormuz-driven oil surge has revived market bets on a Fed rate hike

The sharp rise in oil prices triggered by the Strait of Hormuz crisis has flipped market expectations for US monetary policy: instead of a rate cut, investors are now pricing in a possible rate hike. According to CME's FedWatch tool, the odds of higher rates have climbed to around 60 percent for the September meeting and about 46 percent for the July 29 meeting. This comes even as inflation data ran softer than expected; the producer price index unexpectedly fell 0.3 percent in June, for an annual rate of 5.5 percent. But concern that the oil surge will feed into inflation has offset the cooler reading. The 10-year US Treasury yield stood near 4.55 percent on Friday, July 17, and the dollar index held close to 101. This unusual dynamic has also capped gold's safe-haven bid; spot gold, down more than 3 percent the prior week, hovered around 4,000 dollars an ounce.