Fed Hike Sparks USD Surge Amid Hawkish Stance

Last week's US stock market ended broadly flat while the USD jumped over 1% in value.

This move came as the Federal Reserve hiked interest rates by 25 basis points to 3.75-4%, aligning with expectations.

Policymakers signalled that there could be at least one more rate hike this year, with four out of 18 policymakers indicating two further increases.

The initial drop in stocks and rise in yields was quickly reversed, including an easing in 10-year Treasury yields, suggesting investors saw the Fed's move as a show of credibility on fighting inflation.

The Bank of Japan also hiked rates by 25 basis points to 1.25%, but the 7-2 vote was less hawkish than expected.

This combination of moves led to a brief spike in USD/JPY to 158, up over 2% across the week.

The Bank of England left rates unchanged for a sixth straight meeting, an outlier compared with other major central banks, as second-round inflation effects from higher energy prices have yet to appear in data.

Looking ahead, Fed speakers and PMI data will be in focus this week, including Chicago Fed President Austan Goolsbee on Monday and New York Fed President John Williams on Tuesday.

This comes after the ECB hiked rates by 25 basis points on September 10 amid renewed inflationary pressures and as energy prices are expected to continue rising.