Dollar Fights Expectations as Fed Prepares to Hike Interest Rates

The US Dollar (USD) remains firm ahead of the Federal Reserve's interest rate decision, despite markets having already fully priced in a 25 basis point hike.

This unexpected resilience is attributed to rising US Treasury yields, with the 10-year yield reaching 5.00% and the 2-year yield at 4.66%. These figures indicate persistent inflation anxieties sparked by global commodity shocks.

Lloyd Chan from MUFG notes that the surge in yields reflects escalating Middle East geopolitics and oil prices above $100/bbl, strengthening the case for monetary tightening. However, the Fed must balance price stability against rising borrowing costs for the federal government and key domestic sectors.