US Dollar: Gains stall despite hawkish Fed hold – DBS

Markets project multiple Fed rate hikes in 2027. DBS Group Research economist Philip Wee argues that resilient growth and easing underlying inflation could challenge those expectations. The Federal Reserve’s hawkish pause failed to sustain the Dollar rally despite rising US Treasury yields, he notes. Wee also points to Kevin Warsh’s caution over further rate increases, with the upcoming PCE inflation and 3Q26 GDP releases set to provide important guidance.

Dollar Rally Fades Despite Hawkish Fed Pause

"The Fed’s hawkish hold was not enough to sustain the USD’s rally. The divergence between a softer DXY and higher US Treasury yields was particularly noteworthy."

"Fed Chairman Kevin Warsh’s refusal to affirm a December hike leaves markets reliant on today’s PCE inflation and 3Q26 GDP reports for guidance. Although the headline numbers are likely to be higher, markets may scrutinise the underlying composition of inflation and growth."

"September’s headline PCE inflation is expected to increase to 3.6% YoY (0.5% MoM) from 3.4% YoY (0.3% MoM) in August, with core inflation increasing less by 3.1% YoY (0.3% MoM) from 3.0% YoY (0.2% MoM). Advance estimate for 3Q26 GDP growth is expected to accelerate to an annualised 3.2% QoQ saar from 2.2% in 2Q26, while personal consumption expenditure is anticipated to slow to 3.4% from 3.8%."

"A combination of resilient growth and easing underlying inflation should prompt a reassessment of the multiple 2027 Fed hikes projected by markets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)