USD rate hike bets dwindle, Middle East conflict

PARAGRAPH 1 --- What happened: Market sentiment shifted as hopes for a U.S.-Iran ceasefire agreement faded, driving global bond yields to multi-decade highs and European shares lower. The implied chance of a Fed rate hike in September dropped from nearly 100% to around 33% by August 17, while the 30-year Treasury yield climbed. U.S. President Trump's rejection of a ceasefire extension and Iran's warning of a strong response escalated tensions, pushing Brent crude futures above $91 a barrel.

PARAGRAPH 2 --- Market impact: Rising oil prices and higher bond yields weighed on European stocks, with the CAC 40, FTSE 100, and German stocks all declining. Asian stocks also ended mostly lower, with inflation concerns stoked by elevated oil prices and rising bond yields. The U.S. dollar remained near multi-month lows as traders reduced their bets on rate hikes, although geopolitical risks kept sentiment fragile.

PARAGRAPH 3 --- What to watch next: Investors should closely monitor U.S.-Iran relations, with any further escalation or de-escalation likely to impact oil prices and global markets. The Federal Reserve's next policy meeting on September 16-17 will be crucial, as market participants await clarity on the likelihood of a rate hike. Additionally, the release of key economic data, such as U.S. inflation figures on August 18 and Eurozone GDP data on August 19, may provide further direction for bond yields and currency markets.