Dollar Surges as Fed Hikes Rates Amid Widening Policy Divergence
The Federal Reserve's decision to raise interest rates has sent shockwaves through global currency markets. On September 16, 2026, the Fed hiked its benchmark federal funds rate by 25 basis points to a target range of 3.75%-4.00%. The accompanying Summary of Economic Projections painted a hawkish picture, signaling a median federal funds rate of 4.1% by year-end and indicating at least one more hike this year.
This 'higher-for-longer' rate path has created a policy divergence with other leading central banks, particularly the European Central Bank (ECB) and the Bank of England (BoE). The dollar has rallied as investors seek refuge in US assets, drawn by higher yields and the Fed's unwavering commitment to taming inflation.
The EURUSD pair dropped -0.4854% on September 17, 2026, to 1.1481, closing below the psychologically important 1.1500 mark. The GBPUSD experienced an even larger drop of -0.5945% on September 17, 2026, reaching its weakest level since late July.