Dollar Hits Seven-Week High as Fed Hikes Rates and Warns of More Increases

The Federal Reserve's decision to raise interest rates and hint at more hikes in coming months has pushed the US dollar to a seven-week high. The hawkish tone from new central bank chief Kevin Warsh surprised markets, causing them to reprice policy higher and drive up the dollar.

Warsh's guidance on future hikes was seen as particularly significant, with currency strategist Carol Kong at Commonwealth Bank of Australia stating that 'he definitely sounded more hawkish than expected.'

The dollar's strength has put pressure on other currencies, with the euro reaching a seven-week low and sterling remaining flat ahead of the Bank of England's meeting. The yen is also under scrutiny as markets await the Bank of Japan's decision on Friday.

Rate futures markets now reflect a high probability of a follow-up quarter-percentage-point Fed rate hike by the end of this year, according to CME Group's FedWatch Tool.