The Federal Reserve raised its overnight policy rate by 25 basis points at its September 16 meeting, a move that was widely anticipated by the market according to Rabobank’s RaboResearch Global Economics & Markets FX Strategy team [1]. In response to the rate hike, USD net long speculative positions remained broadly unchanged, with both long and short positions increasing modestly by 2,000 contracts each [1]. This indicates that market participants did not significantly alter their overall positioning on the US dollar following the Fed's decision.
The OIS (Overnight Index Swap) curve continues to reflect investor expectations for more than three additional Federal Reserve rate hikes by the end of next year, suggesting that the market is still positioned for a hawkish Fed policy trajectory [1]. Rabobank analysts note that this ongoing expectation of further tightening is helping to keep the US dollar supported in the market [1].
No significant market volatility or dramatic shifts in speculative positioning were reported in the wake of the Fed's announcement, underscoring the extent to which the rate hike was already priced in by investors [1].
CONCLUSION
The Federal Reserve's 25bp rate hike was in line with market expectations and did not prompt major changes in USD speculative positioning. With investors still anticipating further hikes, the US dollar remains supported by a hawkish Fed outlook.