Dollar Steadies Ahead of Fed Decision as Markets Bet on First Hike Since 2023, BoE Looms

The Dollar Index sits at 99.3560, up just 0.02% in trade that is still running as Thursday begins — the reading covers the tail end of Wednesday's New York session, not a completed close. That flatness comes with markets betting the Federal Reserve will raise its target range 25bp from 3.50%-3.75% to 3.75%-4.00%, in what would be its first hike since 2023, under Chair Kevin Warsh. The move would follow the European Central Bank's own 25bp increase, which took the deposit facility rate to 2.50% effective September 16. With the ECB having delivered and the Fed widely expected to match with fully-flagged 25bp hikes, the rate-differential shock looks limited — hence a dollar index that is barely moved rather than breaking out.

Treasury yields eased across the curve during Wednesday's session: the 10-year fell 4.5bp to 4.951%, the 30-year 3.5bp to 5.329%, the 5-year 5.8bp to 4.768%, and the 3-month 2.5bp to 3.935%. None of that is a large move on its own — the bigger repricing had already happened beforehand, with markets heavily positioned for the widely expected hike. The Fed's anticipated 25bp increase from 3.50%-3.75% to 3.75%-4.00% would be its first since 2023, and Chair Kevin Warsh's guidance on further tightening at the press conference — alongside the dot plot — will be the main signal on whether another hike follows this year.

EUR/USD trades at 1.1539, down 0.02% and still near a one-month low reached as the dollar stayed bid into the Fed decision. GBP/USD is at 1.3449, off 0.20% and near a two-month low, with broad dollar strength swamping Wednesday's UK inflation print, which showed CPI rising to 3.1% y/y in August from 2.9%; the Bank of England's rate decision follows at 21:00 today, with a hold at 3.75% forecast. USD/JPY sits at 154.99, down 0.08%, after touching a one-week high near 155.45-155.50; the Bank of Japan's meeting concludes Friday with a 25bp hike to 1.25% widely expected. USD/CAD is at 1.3936, up 0.11%, extending its advance as an expected Fed hike widens the gap with the Bank of Canada's 2.25% hold.

EUR/USD is at 1.1539, down 0.02% and parked near a one-month low. Wednesday's session saw the dollar stay bid into the Fed decision, with elevated oil prices from the Gulf/Iran conflict also weighing on risk sentiment. The Fed's expected 25bp hike to 3.75%-4.00% comes alongside an ECB that has already moved: the Governing Council lifted the deposit facility rate to 2.50% (MRO 2.65%, marginal lending 2.90%) effective September 16, citing Middle East-driven inflation pressure, with staff projecting 2026 headline inflation at 3.0%. With the ECB's hike delivered and the Fed's fully flagged, the rate-differential shock is limited, leaving the pair consolidating just under its prior close. Today's swing factor is the Eurozone's final August HICP at 19:00 — the flash was 3.3% y/y, the highest since September 2023 — plus a Spanish 10-year bond auction.

Eurozone final Core CPI y/y (forecast 2.4%, previous 2.4%) and final CPI y/y (forecast 3.3%, previous 3.3%) land at 19:00, followed by a Spanish 10-year bond auction at 19:03. The Bank of England delivers its Monetary Policy Summary, MPC vote (forecast 3-0-6) and Official Bank Rate decision (forecast 3.75%, previous 3.75%) at 21:00. At 22:30, Canada releases Foreign Securities Purchases, IPPI and RMPI, while the US publishes the Philly Fed Manufacturing Index (forecast 31.3, previous 47.4), Unemployment Claims (forecast 207K, previous 206K), Building Permits (forecast 1.40M) and Housing Starts (forecast 1.32M). The Bank of Japan's two-day meeting concludes Friday with its policy rate decision, forecast to rise to 1.25% from 1.00%.