The dollar held near a seven-week high on Thursday after the Federal Reserve raised interest rates and signaled another hike ahead, pushing the euro toward a seven-week low. Traders now turn to the Bank of England and Bank of Japan for their own rate decisions.
The euro slid to $1.1463, near a seven-week low, after the Fed's hawkish move lifted the greenback across the board. New Fed chair Kevin Warsh joined a unanimous decision to raise interest rates, and officials projected one more increase in 2026.
Fed's hawkish tilt drives the dollar
Warsh's guidance on further hikes caught markets off guard, causing traders to reprice policy higher, said Carol Kong, currency strategist at Commonwealth Bank of Australia. As a result, the dollar pushed higher across the board.
The dollar index last traded at 100.3, near its strongest level since July 31. Treasury curves flattened sharply after the decision, with two-year note yields holding at their highest since 2024 at 4.7153%, while ten-year yields fell just below the key 5% level. According to Carol Kong: "Our outlook is for the dollar to appreciate because of our view on the FOMC."
Not everyone agrees the move has legs. Philip Wee, senior FX strategist at DBS, said in a note that the Fed's hike decision does not necessarily mark the start of a sustained dollar uptrend, since the Fed is simply catching up with other major central banks responding to inflation risks. Rate futures now reflect about a 90% probability of a follow-up quarter-point Fed hike by year-end, according to CME Group's FedWatch Tool.
BOE and BOJ decisions loom
Sterling held flat at $1.3372 ahead of the Bank of England's meeting, where the central bank is expected to keep rates on hold while investors watch for any hint that surging energy prices could force a shift. The yen hovered near a two-week low at 155.98 per dollar as markets awaited the Bank of Japan's decision on Friday, where it is set to raise rates to a 31-year high.
Elsewhere, the Australian dollar strengthened 0.35% to $0.7111 after the IMF said Australia may need further rate rises to tame inflation. The kiwi added 0.2% to $0.5725.
Source: Investing.com
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