The dollar rose to an eight-week high on expectations of a Fed rate hike
Expectations of further tightening by the regulator outweighed the drop in oil prices below $100 per barrel
On September 23, the dollar rose to its highest level in the past eight weeks. Photo: Ruslan Lytvyn/Shutterstock
On September 23, the dollar rose to its highest level in the past eight weeks. The DXY index, which tracks the U.S. dollar against a basket of six major currencies, peaked at 100.89 points.
The dollar is being buoyed by expectations of further interest rate hikes by the U.S. Federal Reserve (Fed): These expectations outweighed the drop in oil prices below $100 per barrel amid hopes for a diplomatic resolution to the conflict in the Middle East, notes The Wall Street Journal. Last week, the Fed raised rates for the first time in three years and signaled at least one more hike before the end of the year.
The euro and the British pound, on the other hand, fell to their lowest levels since late July—to $1.1407 and $1.3287, respectively.
What People Are Saying in the Market
“The dollar continues to show very good resilience amid falling energy prices and a risk-on market sentiment,” said ING currency strategist Francesco Pesole (as quoted by the WSJ). The strengthening of the U.S. currency is yet another sign that expectations regarding the Fed’s interest rate remain a key factor for traders, he added.
“From a pricing perspective, oil fluctuating in the $90–100 per barrel range is unlikely to cause market expectations to shift toward a ‘dovish’ stance,” Pesole concluded (as quoted by Reuters).
— “The momentum remains with the dollar, even despite the decline in crude oil prices, and this is unlikely to change anytime soon,” noted Derek Halpenny, a currency analyst at MUFG Bank (as quoted by the WSJ).
What Is Expected of the Fed
Investors expect further rate hikes, and Fed officials signaled this week that monetary policy tightening could continue if inflation does not slow down quickly enough, Reuters reports.
According to the CME’s FedWatch tool, on Wednesday, U.S. money markets priced in a 53% probability of another 25-basis-point rate hike by the Fed in October. A quarter-percentage-point increase is already fully priced in by December, and by September 2027, markets are pricing in more than three such hikes, according to LSEG data cited by the WSJ.
This article was AI-translated and verified by a human editor
