Dollar Surge Raises Questions About Future Rate Hikes

The US dollar surged after the Federal Reserve's decision to hike interest rates, signaling scope for another move this year. The DXY index rose by 0.7% to a six-week high, weighing on EUR/USD, GBP/USD, and AUD/USD. Despite the near-term strength, some analysts believe that the broader US dollar rebound is corrective and expect the year's high to be already in.

The Fed's unanimous decision marked its first hike since July 2023, but it remains unclear whether the central bank will match the initial magnitude of its last tightening cycle. In 2022, the Fed hiked by 150bp over its first three meetings, eventually raising rates by 525bp across 11 hikes.

The market is cautiously pricing further tightening next year, with some analysts expecting another rate hike this year and possibly in December. The growth outlook was nudged higher while unemployment was revised lower for 2027, providing subtle but hawkish signals within the projections.