Dollar Steadies Post-Fed Hike as Markets Await BoJ Decision

The Dollar Index sits at 99.9440, down just 0.06% with today's session still open. That's a pause after the index pushed to a seven-week high through Thursday's session on the back of the Fed's September 16 hike to 3.75-4.00%, its first since 2023, alongside a lift in interest on reserve balances to 3.90%. Sixteen of eighteen Fed officials projected at least one more hike this year, a hawkish outcome that hasn't been reversed. Treasury yields eased across the curve today (10Y -5.5bp to 4.951%, 5Y -5.4bp to 4.805%, 30Y -5.2bp to 5.297%) even as equities rallied and the VIX fell 12.03% to 15.58 — risk appetite up, dollar strength largely intact.

The Fed raised its target range 25bp to 3.75-4.00% on September 16, effective September 17 — the first hike since 2023 — and lifted interest on reserve balances to 3.90%. Projections showed 16 of 18 officials expecting at least one more hike this year, a hawkish signal that drove broad dollar strength through Thursday's session. Today, Treasury yields moved the other way: the 10Y fell 5.5bp to 4.951%, the 5Y fell 5.4bp to 4.805%, the 30Y fell 5.2bp to 5.297%, and the 3M was little changed at 3.965% (-0.5bp). Tonight brings the first post-hike Fed commentary, with FOMC member Bowman speaking at 23:30, alongside Industrial Production and Capacity Utilization data at 23:15.

EUR/USD trades 1.1477 (+0.12%), still near its weakest level since late July after Thursday's slide to the 1.1450-1.1480 area on the Fed hike, with the ECB's own September 10 move to a 2.50% deposit rate doing little to offset the divergence. GBP/USD is at 1.3350 (-0.22%), extending a two-session decline after Thursday's BoE hold at 3.75%. USD/JPY sits at 156.00 (-0.19%), off Thursday's seven-week dollar high near 156.20 as markets await today's BoJ decision. USD/CAD is at 1.3987 (-0.02%), consolidating just under 1.4000 near a five-to-six-week high after oil eased on Thursday.

GBP/USD trades 1.3350, down 0.22% with today's session still open, extending a two-session decline. Wednesday's Fed hike to 3.75-4.00% pushed the US policy rate above the UK's for the first time this year, and Thursday's Bank of England hold at 3.75% — a 6-3 vote, with three members backing a move to 4.00% — confirmed the gap. FXStreet had cable near 1.3381 Thursday, down over 0.23% that session after roughly 0.68% on Wednesday's Fed decision. BoE minutes said the Committee might have to tighten further "if the conflict in the Middle East persists ... and the risk of second-round effects emerging increases." UK CPI rose to 3.1% y/y in August, which the BoE said is likely to rise further. Today's ONS Retail Sales (forecast -0.2%, previous -0.5%) at 16:00 is the first UK data since both decisions.

Today's calendar: BoJ press conference at 15:30 (high impact) following today's policy decision; German PPI m/m at 16:00 (forecast 0.6%, previous 1.1%); UK Retail Sales m/m at 16:00 (forecast -0.2%, previous -0.5%); Chinese Foreign Direct Investment ytd/y at 16:02 (previous -6.2%); Eurozone Current Account at 18:00 (forecast 30.7B, previous 35.1B); ECOFIN and Eurogroup meetings at 20:15; ECB President Lagarde speaks at 20:30; US Capacity Utilization at 23:15 (forecast 76.4%, previous 76.3%) and Industrial Production m/m at 23:15 (forecast 0.3%, previous 0.2%); FOMC member Bowman speaks at 23:30.