Dollar Holds Gains After Hawkish Fed Hike

The US Dollar (USD) has maintained its post-Federal Reserve (Fed) hike gains, thanks to a hawkish interest rate decision and a firmer S&P500. The Fed raised rates by 25bps to a target range of 3.75%-4.00%, marking its first hike since July 2023.

According to Brown Brothers Harriman's (BBH) Elias Haddad, the FOMC delivered a hawkish hike due to several factors: the unanimous decision, the upward revision of the 2026 dot, higher real GDP growth forecasts for 2026 and 2027, lower unemployment rate across the forecast horizon, and PCE inflation reaching the 2% target in 2029.

However, Fed Chair Kevin Warsh emphasized that 'inflation is too high and has been for too long,' adding that underlying inflation trends have not 'meaningfully improved.' He pointed out that 'too many categories are still posting increases above 3 percent on both a 6- and 12-month basis.'

Despite global tightening capping USD upside, Haddad notes that the US growth advantage relative to other major economies skews USD risk to the upside.