US Dollar Bounces Back Again as the Fed and ECB Map Out Rate Hikes. Higher USD?

US Dollar, DXY Index, Fed, ECB, Euro, EUR/USD – Talking points

  • The US Dollar has eased after a stellar rally overnight
  • Treasury yields are on the march again, underpinning the DXY Index
  • If the US Dollar contuse to gain, how low will EUR/USD go?

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The US Dollar rallied again overnight after hawkish comments from Boston Fed President Susan Collins highlighting that interest rates will need to be lifted and the extent of the rises will be data dependent.

Better-than-expected jobless claims also buoyed the mood before Raphael Bostic from the Atlanta Fed tempered the celebrations by suggesting that rates may peak in the coming summer. Although he did say that raising rates slowly and steadily was the right course of action.

Federal Reserve Governor Christopher Waller also chimed after the bell and said that rate hikes could be more aggressive if the data warranted it.

Nonetheless, the overnight index swap (OIS) and futures markets are pricing in a 25 basis point hike at the next 3 Federal Open Market Committee (FOMC) meetings. At one stage overnight the futures market was implying a terminal rate from the Fed of almost 5.5%. A long way from the 4.90% that was priced back in January.

Treasury yields continued their trot toward new highs with the 2-year bond trading at 4.94%, the highest since July 2007 while the benchmark 10-year note is ensconced above 4%, as it nudged 4.09%

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The DXY index retraced the previous day’s losses into the New York close, but it has eased slightly into the Asian session.

The DXY index is a US Dollar index that is weighted against EUR (57.6%), JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%).

While the Fed is concerned about ensuring they are in front of the curve when it comes to tightening, the European Central Bank appear to be playing catch up as inflation data there re-accelerated.

Yesterday, the Euro-wide month-on-month CPI jumped to 0.8% for February, well above the 0.5% anticipated and -0.2% prior. The year-on-year read was 8.5% rather than 8.3% forecast and 8.6% previously.

The OIS market has a 50 basis points lift by the European Central Bank (ECB) at its meeting in 2 weeks’ time with potentially more hikes of 50 down the track. EUR/USD slipped under 1.0600 yesterday but it has recovered somewhat.

While San Francisco Fed President Mary Daly will be speaking later today, the focus will be on Fed chair Jerome Powell next week. He will be testifying in front of the Senate Banking Committee when he presents his semi-annual Monetary Policy Report on Tuesday


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— Written by Daniel McCarthy, Strategist for

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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