US Dollar: Stronger Levels Underpinned by Fed Repricing – MUFG

Expectations of faster Federal Reserve rate hikes have supported further US Dollar gains, lifting the Dollar Index to a new year-to-date high, according to MUFG’s Lee Hardman. With futures fully pricing in a 25bps increase in December and further tightening into January, forthcoming comments from Fed officials are seen as crucial to assessing the likelihood of consecutive hikes.

How Is Fed Repricing Lifting the Dollar Index?

"The US dollar has continued to strengthen overnight resulting in the dollar index hitting a fresh year-to-date high of 103.08. The US dollar’s renewed upward momentum has been encouraged by expectations that the Fed is likely to speed up the pace of rate hikes in response to the recent run of stronger US inflation data."

"There are currently around 28bps of hikes priced by December, and 43bps of hikes priced by the following meeting in January indicating that even if the Fed hikes by 25bps in December it is now expected to quickly follow up with another 25bps hike at the start of next year."

"The updated views of New York Fed President John Williams could carry more weight. He stated earlier this month that it is an “appropriate time to accumulate more information to help us determine what the appropriate stance of policy is to make sure we achieve a timely return to our 2% target”. While we don’t expect a larger 50bps hike to be delivered in December, it is more likely now that the Fed could hike rates back-to-back in December and January."

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