Dollar Set for Weekly Gain on Fed Rate Hike Bets
The US Dollar Index eases to 100.75 after reaching one-year highs at 101.13. The Index is on course for a 1% weekly appreciation, supported by increasing expectations of Fed tightening. Markets are currently assigning a 77% probability to a rate hike in October, a notable increase from the 37% observed just a week prior. The US Dollar Index, which measures the value of the Greenback against a basket of peers, has lost steam during Friday’s European session, with markets operating at half throttle amid the Juneteenth bank holiday in the US and investors contemplating the soundness of the US-Iran peace deal. The Index has pulled back from its one-year peaks exceeding 101.00, yet it continues to hold firm above 100.75 at this point, positioning itself for a 1% increase over the week.
From a broader perspective, the pair maintains its overarching bullish trend, supported by increasing expectations that the Federal Reserve will implement at least one rate hike this year. The hawkishly leaning monetary policy stance released after June’s meeting and Kevin Warsh’s commitment to bring inflation to the 2% level have alleviated concerns regarding the new chairman’s perceived dovishness and reinstated confidence in the bank’s independence. The Fed also published a more concise monetary policy statement, omitting any reference to the easing bias and emphasising the enhancement in economic activity and the robust labour market.
Beyond that, the interest rate projections, which did not incorporate Warsh’s perspective, indicated that nearly half of the board members anticipate at least one rate increase in 2026. Futures markets have increased their expectations regarding monetary tightening following the Federal Reserve’s meeting. Probabilities for a minimum of one rate increase prior to October have escalated to 77%, up from approximately 40% just a week earlier. Furthermore, the likelihood of a rate hike occurring before the year’s end has surged to 90%, compared to 55% the previous week, as indicated by data from the CME Group’s Fed Watch Tool.
