Dollar hits 4-month high as markets price Fed rate hike by October

Markets fully priced in a Fed rate hike by October after Chair Kevin Warsh struck a hawkish tone at his first meeting, with nine of 18 officials projecting tightening.mufgresearch
The dollar index rose to around 100.3 while the Bank of England is expected to hold rates at 3.75% despite stronger-than-expected UK wage data.reuters
The Swiss National Bank held its policy rate at zero, highlighting widening divergence among major central banks that analysts say favors continued dollar strength.snb

Fed Hawkish Signals Boost Dollar Ahead of BoE and SNB Decisions

The US dollar held firm on Thursday, trading near multi-month highs after the Federal Reserve delivered a hawkish surprise at Chair Kevin Warsh’s first policy meeting, with markets now fully pricing in a rate hike by October. Attention turned to central bank decisions in Europe, with the Bank of England expected to hold rates steady and the Swiss National Bank already confirming its rate at zero.

Warsh’s Hawkish Debut Reshapes Rate Expectations

The Fed held its policy rate unchanged on Wednesday but sent a clear signal that tightening is on the table. Nine of 18 FOMC members projected at least one rate hike this year in the updated dot plot, and the core PCE inflation forecast was revised sharply higher to 3.3% from 2.7%. Fed funds futures repriced aggressively, now fully discounting a hike by October, with some traders eyeing September as a possibility. Goldman Sachs said it expects the Fed to raise rates as early as September.mufgresearch

The dollar index rose to around 100.3, a four-month high, gaining roughly 0.6% following the decision. US two-year Treasury yields climbed 13 basis points to 4.18%. The move came even as the US-Iran memorandum of understanding signed by President Trump eased geopolitical tensions and pushed Brent crude below $80 a barrel.youtube

UK Labour Data Complicates Bank of England Calculus

Hours before the Bank of England’s noon decision, fresh data from the Office for National Statistics showed that UK wage growth beat expectations, holding steady at 3.4% excluding bonuses in the three months to April versus forecasts of a decline to 3.2%. The unemployment rate unexpectedly dipped to 4.9% from 5.0%, its joint-lowest since mid-2025.reuters

Despite the firmer labour market readings, economists widely expect the Monetary Policy Committee to hold Bank Rate at 3.75%, likely with a 7-2 vote, as policymakers assess whether the energy price shock from the Iran conflict will trigger lasting inflation. Reuters reported that Bank of America economists see rate hikes more likely in July and September.morningstar

SNB Holds at Zero as Global Policy Diverges

The Swiss National Bank confirmed earlier Thursday that it left its policy rate unchanged at 0%, as unanimously expected. The SNB slightly raised its inflation forecast to 0.6% for both 2026 and 2027 but maintained its growth outlook at 1.0% for this year. The Swiss franc weakened modestly following the announcement.snb

The contrast between the Fed’s hawkish posture and the SNB’s accommodative stance underscores widening policy divergence among major central banks, a dynamic that analysts at ING said supports continued dollar strength in the near term even if a sustained breakout remains unlikely.investing