The US dollar traded near multi-week highs on Thursday, supported by the Federal Reserve’s more hawkish tone.
The currency bounced yesterday following the Fed’s monetary policy decision and press conference, as well as in reaction to the release of the updated economic projections.
While the Federal Reserve left interest rates unchanged, the updated projections signalled policymakers’ expectations of policy tightening.
The latest forecasts showed that nine of the Fed’s policymakers now expect at least one rate hike by the end of 2026.
Additionally, Fed Chair Warsh emphasised the central bank’s commitment to restoring price stability, which could reinforce expectations that monetary policy could be more restrictive. As a result, markets expect two interest rate hikes in the next 12 months, providing further support to both bond yields and the currency.
However, gains in the dollar could be limited by improving geopolitical sentiment. The United States and Iran signed an interim agreement aimed at ending tensions, reopening the Strait of Hormuz, and easing restrictions on Iranian oil exports.
Looking ahead, traders will continue to monitor geopolitical developments and the next steps in negotiations. Attention will also turn to today’s weekly jobless claims, which could provide further insight into labour market conditions and influence expectations of future Federal Reserve policy.
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