US Dollar: Gradual upside after hawkish Fed hike – HSBC

HSBC’s FX Viewpoint notes that the Federal Reserve’s unanimous 25bp hike and hawkish guidance have reinforced support for the Dollar. The bank highlights that the dots imply at least one more hike in 2026 and potential tightening in 2027, while still below market pricing. HSBC remains modestly bullish on the USD, expecting further gains to be gradual and data-dependent as other G10 central banks also turn more hawkish.

Fed tightening underpins Dollar strength

"The USD strengthened following the decision. While the move was widely expected, the unanimous vote reinforced confidence in the Committee’s tightening bias. The median 2026 “dot” implies one additional hike before year-end, with a significant minority of participants still anticipating a further rate rise in 2027."

"This path is more hawkish than a “one-and-done” outcome but remains below current market pricing, so we do not expect a major repricing of rate expectations or the USD. Instead, the market’s attention is likely to focus on whether incoming data validate the final projected increase this year."

"Warsh’s remarks extended the USD-supportive message, stressing that inflation remains too high, economic activity – particularly in the labour market – is resilient, and policy is still accommodative, with the latest hike only reducing that accommodation. Overall, this points to a Fed that is prepared to tighten further if required, which should continue to support the currency."

"We remain modestly bullish on the USD. The US economy continues to show resilience, the Fed has joined the group of central banks tightening and appears willing to do more, and the USD is less exposed than the EUR, GBP and JPY to the drag from elevated energy prices."

"However, the modest gap between the dots and market pricing suggests upside is likely to be measured and data-driven, particularly given that other G10 central banks are also leaning more hawkish."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)