The dollar's rally slowed ahead of a key Federal Reserve decision.
2026-09-16 19:38:09
The dollar extended its gains against all major currencies on Tuesday. However, the dollar stabilized somewhat today as investors were reluctant to hold large positions ahead of the Federal Open Market Committee (FOMC) interest rate decision later in the day. 
Last week's persistently high inflation data, coupled with continued tensions in the Middle East, has led to widespread market confidence that the Federal Reserve will initiate an interest rate hike. Federal funds rate futures indicate a 90% probability of a 25 basis point rate hike, with the market fully pricing in another 25 basis point hike in December. By the end of next year, the market will have priced in a total of approximately 95 basis points of rate hikes. Against this backdrop, a single rate hike is unlikely to significantly impact the market. However, if the rate hike does occur, the updated dot plot and accompanying economic forecasts will immediately become the focus of the market. At the subsequent press conference, investors are eager to know whether Federal Reserve Chairman Kevin Warsh will remain committed to curbing inflation in the face of increasing pressure from President Trump on monetary policy. Can policymakers meet the market's hawkish expectations? Even if Warsh's statements are more hawkish than Trump expects, the core issue is whether his hawkish stance can meet market expectations. Looking back at the June dot plot, it only indicated one rate hike this year and projected rate cuts starting in 2027. Therefore, matching the current market's expected rate hike path is already a very high bar. Therefore, if the Federal Reserve can keep the market betting on a cumulative 95 basis point rate hike by the end of next year, the dollar is likely to continue its recent upward trend. Conversely, even if the decision is generally hawkish, if the released interest rate path falls short of market expectations, it could prompt dollar bulls to close some of their recently established long positions. The Bank of England is expected to keep interest rates unchanged, while the Bank of Japan may raise rates . Investors face more than just the Federal Reserve's central bank decisions. Tomorrow will see the Bank of England's decision, followed by the Bank of Japan on Friday. The market generally expects the Bank of England to maintain its current interest rate, and investors will focus on the committee's vote and forward guidance. Overnight index swaps (OIS) pricing in the UK market indicate a cumulative 100 basis point rate hike in the UK by the end of 2027. If policymakers signal no intention to raise rates quickly, the pound will come under pressure. Coupled with a possible hawkish signal from the Federal Reserve, the pound/dollar exchange rate may fall below 1.3460, targeting the intraday high of around 1.3365 reached on July 27. As for the Bank of Japan, traders believe there is an 80% probability of an interest rate hike at Friday's decision, making subsequent policy clues from Kazuo Ueda crucial. With joint intervention in the foreign exchange market by Japan and the US, recent market suspicions of renewed currency checks by Japan, hawkish comments from Bank of Japan and government officials, and market reports of yen capital inflows, Japanese policymakers need to send very strong signals for the yen to potentially resume its upward trend. Interest rate hike expectations suppress stock market performance All three major US stock indices closed lower. Tensions in the Middle East and continued rise in oil prices have further strengthened market expectations of further interest rate hikes by major central banks. Although investors have regained confidence in investment in artificial intelligence, concerns about rapidly rising borrowing costs have overshadowed this optimism. Tonight's Fed decision will be key to determining whether the US stock market correction continues or a rebound occurs. Gold found support at around $4260 yesterday and rebounded somewhat today, also awaiting the Fed decision before a clearer market direction emerges. Risk Warning: The above is only a translation of news text and does not constitute any investment advice. Forex and precious metals trading involves high risk.
Last week's persistently high inflation data, coupled with continued tensions in the Middle East, has led to widespread market confidence that the Federal Reserve will initiate an interest rate hike. Federal funds rate futures indicate a 90% probability of a 25 basis point rate hike, with the market fully pricing in another 25 basis point hike in December. By the end of next year, the market will have priced in a total of approximately 95 basis points of rate hikes. Against this backdrop, a single rate hike is unlikely to significantly impact the market. However, if the rate hike does occur, the updated dot plot and accompanying economic forecasts will immediately become the focus of the market. At the subsequent press conference, investors are eager to know whether Federal Reserve Chairman Kevin Warsh will remain committed to curbing inflation in the face of increasing pressure from President Trump on monetary policy. Can policymakers meet the market's hawkish expectations? Even if Warsh's statements are more hawkish than Trump expects, the core issue is whether his hawkish stance can meet market expectations. Looking back at the June dot plot, it only indicated one rate hike this year and projected rate cuts starting in 2027. Therefore, matching the current market's expected rate hike path is already a very high bar. Therefore, if the Federal Reserve can keep the market betting on a cumulative 95 basis point rate hike by the end of next year, the dollar is likely to continue its recent upward trend. Conversely, even if the decision is generally hawkish, if the released interest rate path falls short of market expectations, it could prompt dollar bulls to close some of their recently established long positions. The Bank of England is expected to keep interest rates unchanged, while the Bank of Japan may raise rates . Investors face more than just the Federal Reserve's central bank decisions. Tomorrow will see the Bank of England's decision, followed by the Bank of Japan on Friday. The market generally expects the Bank of England to maintain its current interest rate, and investors will focus on the committee's vote and forward guidance. Overnight index swaps (OIS) pricing in the UK market indicate a cumulative 100 basis point rate hike in the UK by the end of 2027. If policymakers signal no intention to raise rates quickly, the pound will come under pressure. Coupled with a possible hawkish signal from the Federal Reserve, the pound/dollar exchange rate may fall below 1.3460, targeting the intraday high of around 1.3365 reached on July 27. As for the Bank of Japan, traders believe there is an 80% probability of an interest rate hike at Friday's decision, making subsequent policy clues from Kazuo Ueda crucial. With joint intervention in the foreign exchange market by Japan and the US, recent market suspicions of renewed currency checks by Japan, hawkish comments from Bank of Japan and government officials, and market reports of yen capital inflows, Japanese policymakers need to send very strong signals for the yen to potentially resume its upward trend. Interest rate hike expectations suppress stock market performance All three major US stock indices closed lower. Tensions in the Middle East and continued rise in oil prices have further strengthened market expectations of further interest rate hikes by major central banks. Although investors have regained confidence in investment in artificial intelligence, concerns about rapidly rising borrowing costs have overshadowed this optimism. Tonight's Fed decision will be key to determining whether the US stock market correction continues or a rebound occurs. Gold found support at around $4260 yesterday and rebounded somewhat today, also awaiting the Fed decision before a clearer market direction emerges. Risk Warning: The above is only a translation of news text and does not constitute any investment advice. Forex and precious metals trading involves high risk.
- Risk Warning and Disclaimer
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