Dollar Momentum Stymied by Fed Hawkishness

The US dollar has continued to strengthen this week, hitting a high of 101.61 in the dollar index yesterday. However, this upward momentum was dampened by comments from New York Fed President Williams, who pushed back against market expectations for an October rate hike.

Williams stated that there is no need for urgency and that the Fed has time to gather more information before making a decision. He also expressed confidence in the US economy, expecting somewhat larger and long-lasting effects from energy prices and increased inflationary impact from AI-related demand shocks.

This led to market expectations being pared back for an October rate hike, with around 12bps of hikes priced in compared to 18bps prior to Williams' comments. The comments also contributed to a reduction in US yields, leaving room for potential correction if the Fed leaves rates on hold in October.