Fed's Hawkish Stance Boosts US Dollar Amid Geopolitical Uncertainty
The Federal Reserve's recent policy meeting sent a strongly hawkish signal, exceeding market expectations and boosting the US dollar. The September outcome has turned the October meeting into an 'active meeting,' with markets pricing in around 13 basis points of additional rate hikes.
Citi Research notes that this macroeconomic mix, high yields coupled with downward pressure on equities, is historically the most bullish environment for the US dollar. As a result, the US Dollar Index (DXY) has strengthened technically, completing a double-bottom confirmation with a target level of 101.15.
The euro, Swiss franc, Swedish krona, and New Zealand dollar are all under downward pressure, and the euro/dollar exchange rate may retest its 1.13 low. While geopolitical tensions and midterm elections keep market uncertainty elevated, Citi Research believes that this tightening expectation will continue supporting US Treasury yields and the US dollar until these factors become clearer.