Fed rate hike bolsters US Dollar Index above 100.00
- DXY jumps 0.59% through 100.00, clearing both its 50-day and 200-day averages.
- Fed raises to 3.75-4.00% on a 12-0 vote, its first increase since 2023.
- Projections lift the end-2027 median to 4.1% from 3.6% in June.
The Dollar Index broke above 100.00, back above both of its long-run averages. The quarter-point that took the Fed to 3.75-4.00% was fully priced and worth nothing on its own. What the Dollar bought this afternoon was the paperwork that came with it: a set of projections with no rate cuts in them before 2028, and half an hour of a chair explaining why.
The forecasts did the work, minus one forecast
The committee's own numbers moved a long way. The median for the end of this year went from 3.8% in June to 4.1%, which is one more increase from here. The end-2027 median went from 3.6% to 4.1%, deleting next year's cuts entirely. Twelve of the eighteen who submitted projections put 2026 at 4.125%, four want two more increases and two think the job is done. Asked about it afterward, the chair said he had not offered a projection of his own, as he did not in June. The number the Dollar just rallied on is a median of everybody except the man who reads it out.
Everyone else is raising too, which is the point
This index is a comparison rather than a verdict, and it is not a broad one. The Euro alone is 57.6% of it, and adding the Yen and the Pound gets three currencies to roughly four-fifths of the whole thing. The European Central Bank (ECB) raised its deposit rate to 2.50% last Thursday and the Bank of England answers at 11:00 GMT tomorrow, so two of those three are moving the same way. What this index registers is not whether American rates went up, but whether they went up by more than everyone else's. The weights it uses to answer that were last changed in 1999.
Levels and bias
Resistance: Today's high at 100.25 is the first thing overhead, and 100.50 is the next round level above it.
Support: The 50-day and 200-day Exponential Moving Averages (EMA) sit 0.11 apart just below 99.70, and the index cleared both on the decision. That cluster is the floor that matters, with 99.50 beneath it.
Bias: Bullish while the average cluster just below 99.70 holds, with 100.50 the first objective and 101.00 behind it. Daily momentum, measured by the Stochastic Relative Strength Index (Stoch RSI), sits near 67 and is still climbing, so there is room before the move is stretched. A daily close back below 99.50 voids the case.
DXY daily chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
Author
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
