The US Dollar (USD) maintained its strength near a six-week high, with the US Dollar Index (DXY) trading firmly around 100.27 as of Friday's Asian session, following a week in which the Federal Reserve (Fed) raised interest rates by 25 basis points to a range of 3.75%-4.00% [2][3]. The Fed's decision marked the first rate hike since 2023, and the updated dot plot indicated that most Federal Open Market Committee (FOMC) members expect at least one more rate increase this year [1][2][3]. Fed Chair Kevin Warsh emphasized that "inflation is too high and has been for too long" during the post-meeting press conference, reinforcing the hawkish outlook [2][3].
Market expectations for further tightening have intensified, with the CME FedWatch tool showing the probability of at least one more Fed rate hike rising to 88%, up from 66.3% a week ago [2]. Specifically, traders see a 54% chance of a hike at the October meeting and an 88% probability for December [3]. Analysts at UOB Group now anticipate two additional Fed rate hikes, suggesting that the narrowing of US rate differentials with G-10 peers may reverse, supporting further USD strength [3].
Against this backdrop, the New Zealand Dollar (NZD) has struggled, with NZD/USD trading near 0.5730 and remaining on track for its fourth consecutive weekly loss [1]. The NZD's underperformance is attributed to the Reserve Bank of New Zealand's (RBNZ) cautious stance, which has offset the positive impact of a better-than-expected domestic GDP report [1]. Over the week, the USD gained 1.55% against the NZD, making it one of the weakest major currencies versus the Greenback [2].
Meanwhile, gold (XAU/USD) has failed to sustain gains, as the hawkish Fed outlook and ongoing geopolitical tensions in the Middle East have limited the downside for the USD and capped gold's recovery from a six-week low [3]. The retreat in US bond yields, driven by easing crude oil prices, has provided some support to gold and the NZD, but the overall fundamental backdrop remains tilted in favor of USD bulls [1][3].
Looking ahead, market participants are awaiting Friday's US Industrial Production and Capacity Utilization Rate data, as well as speeches from influential FOMC members and further developments in the Middle East, for additional direction [1][3]. Next week, attention will turn to the preliminary US S&P Global PMI data for September [2].
CONCLUSION
The Federal Reserve's hawkish stance and recent rate hike have reinforced US Dollar strength, with the DXY holding near multi-week highs and expectations for further tightening rising sharply. The New Zealand Dollar and gold have both underperformed amid diverging central bank policies and persistent geopolitical risks. Market sentiment remains supportive of the USD, with upcoming US macro data and FOMC commentary likely to drive further moves.