Dollar Surges as Fed Strikes Hawkish Note on Inflation

The US dollar surged higher after the Federal Reserve's hawkish comments on inflation and policy recalibration. The Fed's speakers continued to strike a relatively hawkish note, highlighting the growth pick-up and broadness of inflation. This has pushed market bets towards a back-to-back rate hike in October, accelerating to 70%. The Eurozone PMI data also showed unexpected strength, but was trumped by the US equivalent, which saw impressive re-accelerations skywards.

The dollar's gains have been driven by the prospects of 'brave' pre-mid-term back-to-back hikes, which would keep it in the ascendancy. The EUR/USD has picked up speed after taking out 1.1450 and 1.420~ levels, but downward momentum looks next to the critical support at 1.1325, the current year low of June 24.

The Riksbank, Norges Bank, and Swiss National Bank (SNB) all meet this week, with market pricing swinging in favor of a hike from Norges Bank. A pause by Norges would amplify the impact, especially after recent local news and overall NOK strength. The SNB meeting is unlikely to move the dial on ultra-low Swiss rates.

The dollar's post-FOMC follow-through remains the big story, with rate spreads exerting themselves on re-pricing and Fed speakers voicing blunter messages on inflation being off track and policy recalibration needed.