Dollar Strength Persists as Fed Keeps Hiking, Commerzbank Says

Commerzbank's Volkmar Baur notes that the EUR/USD stabilized after the Federal Reserve's hawkish surprise, with markets now fully pricing another Fed rate hike in December and no cuts until late next year.

The bank has adjusted its forecast, expecting the EUR/USD to hold near 1.15 through year-end before gradually rising, targeting 1.18 by end-2027 as US policy and politics weigh on the Dollar.

According to Baur, the Fed's path keeps the Dollar supported, with markets reacting positively to the Fed meeting despite higher policy rates and slightly increased interest rate expectations for the Fed over the next 12 months.

Baur notes that long-term interest rates tended to fall yesterday following the interest rate decision, which led Commerzbank's economists to adjust their expectations regarding the Fed and anticipate another rate hike in December, with the first rate cuts not expected until the fourth quarter of next year.