Dollar Slides on Fed Decision, Rebounds Amid Middle East Tensions
The US dollar fell across the board on Wednesday following the FOMC decision to hold interest rates steady, but rebounded today due to tensions in the Middle East.
Despite some hawkish comments from Fed Chair Kevin Warsh, investors had been pricing in a rate hike and were disappointed by the lack of clear signals. As a result, the greenback tumbled after the decision, only to recover as tensions in the region escalated.
The market now assigns a 75% probability of a September rate hike, up from 35% before the decision, with the remaining 25% predicting no action. The second quarter-point hike is still fully factored into March 2027.
The attention now turns to the Bank of England, which is expected to keep interest rates unchanged again, but a 25bps rate hike remains priced in for November. A hawkish message from the BoE could encourage market participants to bring forward their rate hike bets and support the pound.