Dollar Posts Best Week Since June as Rate Hike Expectations Open Upside
nashnova research
The Bloomberg Dollar Spot Index rose roughly 1.1% this week — its best weekly gain in three months — after the Fed's first rate hike in over three years removed the biggest barrier to going long the greenback, though banks disagree on whether a new year-to-date high is within reach.
What triggered this dollar rally?
The Fed hiked rates by 25 basis points on Wednesday — the first increase in more than three years. This means → the market's biggest fear — that Chair Kevin Warsh might defy the White House and hold — was eliminated in one move.
Steve Englander, co-head of FX research at Standard Chartered, said the hike "cleared the single biggest hurdle to buying dollars and created the single biggest hurdle to selling them."
In plain terms = markets had been waiting to see *whether* the Fed would hike; once the answer landed, capital rushed into the dollar.
Was the dollar still undervalued?
JPMorgan currency analyst Pat Locke noted that before the meeting, the dollar was undervalued by roughly 2%–4% on rate-differential and other metrics.
This means → post-hike, money is flowing into a catch-up trade — particularly selling low-yielding currencies and buying the dollar.
Standard Chartered, JPMorgan, and Brown Brothers Harriman all agree the hike removed the biggest obstacle to dollar strength.
What is the technical picture saying?
The dollar index consolidated near its 200-day moving average — the average closing price over the past 200 trading days, a key gauge of medium-term trend — on Wednesday and Thursday, then edged above it on Friday.
This reflects bulls testing a pivotal resistance level. Historically, a daily close above the 200-day MA preceded further gains — similar setups appeared in March and June.
Late Friday, however, gains narrowed. The Bank of Japan conducted a rate check — typically seen as a precursor to official intervention — and the yen's decline eased.
Why do some analysts doubt a new high?
Elias Haddad, head of global markets strategy at Brown Brothers Harriman, is cautious: other major central banks are also tightening, limiting policy divergence, so "the dollar is unlikely to set a new cycle high."
Options pricing points to modest dollar strength over the next month, but implied gains fall well short of pushing the index to a new year-to-date peak.
Speculative long positions have been cut for six straight weeks; the latest CFTC data still reflect pre-hike positioning. In plain terms = speculators were reducing bets *before* the hike — whether they rebuild depends on next week's data.
What comes next?
The dollar index sits roughly 1.9% below its year-to-date high, set on June 24, 2026.
Haddad noted that the U.S. growth advantage remains significant; next week's September S&P Global PMI is expected to reaffirm that the U.S. leads the eurozone, the U.K., and Japan.
This means → whether the dollar can break through its yearly high hinges on incoming data sustaining expectations for further hikes — and the PMI is the first test window.
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