US Dollar Surges on Hawkish Fed Decision
The US dollar experienced a significant surge following the Federal Reserve's (Fed) decision to hike interest rates, signaling further tightening in the monetary policy.
The Fed's unanimous decision to raise interest rates marked its first hike since July 2023, with markets anticipating another rate hike by December. However, it remains uncertain whether the Fed will match the initial magnitude of its last tightening cycle, which saw a 525 basis point (bp) increase across 11 hikes in 2022.
The US dollar index rose 0.7% to a six-week high, with EUR/USD falling to a 34-day low and GBP/USD declining by 0.8% due to the hawkish Fed decision and softer-than-expected CPI. USD/CAD rallied for a sixth day, reaching within pips of its 1.4 upside target.
Market analysts suggest that while the near-term strength of the US dollar is substantial, it may be limited, with some anticipating a pullback after an extended run. The weekly RSI (2) and RSI (14) indicate that momentum is in favour of US dollar bulls, but the author continues to suspect that the year's high for the US dollar has already been reached.