Dollar Strengthens as Fed Hikes Rates Amid Inflation Concerns
The US dollar continued its winning streak after the Federal Reserve's (Fed) decision to raise interest rates for the first time since 2023. The move was in line with hawkish market bets and was accompanied by a unanimous vote from Fed officials. Citing elevated inflation and upside risks, the Committee upgraded their GDP and inflation forecast for 2026.
The median dot for 2027 did not indicate any additional increases, but eight members voted for another hike next year, while one believed two could be warranted. This allowed investors to maintain their hawkish bets, assigning a 50% chance of a back-to-back increase in October and fully factoring it in for December.
Chicago Fed President Austan Goolsbee will step up to the rostrum on Monday, followed by Vice Chair Philip Jefferson and New York President John Williams on Tuesday. If they reiterate concerns about elevated inflation and the upside risks stemming from the Middle East conflict, investors are likely to maintain their hawkish Fed hike bets.
Wednesday's S&P flash PMIs for September will test the US economy's growth outlook, with a focus on price subcomponents due to the acceleration in producer prices. The Eurozone and UK flash PMIs also released on Wednesday may need strong numbers to flex some muscles.