Dollar Rallies Amid Hawkish Fed Tone, Euro Struggles with German Instability

The US Dollar has regained some lost ground as the Federal Reserve delivers a hawkish tone on monetary policy, according to FXS Speechtracker. Fed officials see inflation remaining above the 2% target over the next 18 months and emphasize the need for further interest rate hikes.

This stance is reflected in the FXS Fed Sentiment Index, which rose by 0.42 points to 149.96, firmly in hawkish territory. The index signals that the broader Fed communication backdrop remains skewed toward tightening, supporting the Dollar and weighing on other major currencies like the Euro.

Meanwhile, the Euro is struggling due to intensified political instability in Germany. The far-right Alternative for Germany (AfD) has claimed first place in regional elections, leaving Chancellor Friedrich Merz's conservative party vulnerable.