Research Team at BNP Paribas, suggests that the better run of US data and continuing recovery in equity and credit markets over the past few sessions has allowed the rates markets to begin cautiously increasing pricing for renewed Fed tightening in the coming months. Key Quotes “The July Fed funds future is now implying a yield of 49bp, about 11bp above the current mid-point of the Fed’s target range and the highest since late January. If sustained and extended, the combination of rising US front-end yields and an improving risk environment would be constructive for further USD gains vs. low-yielding currencies. However, we remain sceptical that rates markets will be able to rebuild pricing for H1 Fed hikes without derailing the nascent recovery in financial market sentiment. Moreover, a firming USD would presumably revive concerns about CNY devaluation and could put renewed pressure on commodity prices. We remain near-term bears on the USD relative to the EUR and JPY, but continue to expect the USD to outperform commodity currencies. Ahead today, focus will be on the ADP payroll report and a speech from San Francisco Fed President Williams.” For more information, read our latest forex news.