Dollar Soars to Seven-Week High as Fed Hike Boosts Interest Rate Outlook

The US Dollar Index (DXY) has reached a seven-week high due to the Federal Reserve's interest rate hike on Wednesday. The index currently trades at around 100.40 and is poised for a weekly gain of over 1%. US Treasury yields have also rebounded sharply, supporting the dollar. This movement is largely driven by firm oil prices and concerns about energy-related inflation.

Analysts at UOB Group have shifted their stance on interest rates, becoming modestly hawkish. They now expect two additional rate hikes in December 2026 and the first quarter of 2027, followed by a hold in rates for the rest of 2027 as inflation fades.

This shift implies that US rate differentials relative to G-10 peers will narrow, underpinning the DXY. However, UOB notes constraints and risks surrounding policy paths, including potential further tightening if inflation persists due to higher energy prices, trade tariffs, and AI-related factors.