Original article credit: Mitrade News Team (source: https://www.mitrade.com/insights/news/live-news/article-3-1120919-20250914)
Title: US Dollar Strengthens Further as Fed Maintains Hawkish Stance; Key Forex Pairs React
Overview:
The US Dollar continues its upward momentum following recent statements from Federal Reserve officials reiterating a commitment to tackling inflation through a tight monetary policy. This forward guidance from the Fed, along with strong US economic data, has reinforced the Dollar Index (DXY), influencing key currency pairs across the forex market. The greenback’s strength is creating volatility and opportunity, particularly against the Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), and others sensitive to interest rate differentials.
Federal Reserve Policy Outlook:
Recent speeches from Federal Reserve Chair Jerome Powell and other Fed members have confirmed that the central bank intends to maintain high interest rates for a longer period, even if it means temporary economic slowdown. Their core objective remains anchoring inflation expectations and ensuring long-term price stability, which they believe is vital for sustainable economic growth.
Key Fed-related elements supporting the US Dollar:
– Tight labor market conditions support continued rate hikes
– Inflation remains well above the Fed’s 2% target
– Some Fed officials suggest another rate hike may occur before year-end
– Broad market sentiment expects no rate cuts until the second half of 2025
– Hawkish Fed communication keeps Treasury yields elevated
Market Interpretation:
Investors and traders interpret these comments as a clear signal that the central bank is not in a hurry to ease its policy stance. Bond yields have risen in tandem, with the US 10-year Treasury yield holding above 4.5%, drawing foreign capital inflows and adding demand for the Dollar. As a result, the DXY maintains its strength near multi-month highs.
Key Forex Pairs Impacted:
EUR/USD:
The Euro remains under pressure as the European Central Bank (ECB) maintains a more cautious policy tone despite persistent inflation worries in the Eurozone. Eurozone economic data continues to underperform relative to the US, adding further divergence between the two major central banks.
– EUR/USD hovers around 1.0650, showing little momentum to regain lost ground
– Weak German industrial and sentiment data continue to limit Euro upside
– ECB officials sound less decisive on future rate hikes compared to the Fed
– Market anticipates ECB may pause further tightening due to slowing growth
Outlook: As long as US yields remain elevated and European data lags, the pressure on the Euro is expected to persist. A retest of the 1.0600 support level remains possible, especially if upcoming Inflation or GDP prints disappoint.
USD/JPY:
The Japanese Yen has weakened further as the Bank of Japan (BoJ) remains the last major central bank to maintain ultra-loose monetary policy. Despite rising inflation in Japan, the BoJ has not voiced any immediate plan to exit its bond yield curve control strategy.
– USD/JPY trades above 149.50, near intervention levels noted in 2022
– Japanese authorities express concern over currency weakness, threatening verbal intervention
– However, real policy action to support the Yen remains limited
– The wide US-Japan interest rate spread continues to drive capital out of Japan
Outlook: Unless the BoJ surprises markets with stronger policy adjustments, or the Fed softens its tone, the Yen is likely to stay under pressure. Markets remain watchful for potential intervention near the psychological 150.00 level.
GBP/USD:
The British Pound is also facing headwinds from international monetary developments and domestic uncertainty. Although UK inflation remains high, evidence is growing that a slowdown is on the horizon, leading many to believe that the Bank of England may soon pause policy tightening.
– GBP/USD trades close to 1.2400, slipping near its lowest levels since March
– UK retail and housing data have shown mixed results
Read more on EUR/USD trading.