US Dollar Index Hits Highest Since May 2025, SocGen Bullish on Further Dollar Upside
Miles Bennett
The dollar index rose 0.62% to 100.71 Thursday, its highest since May — driven by a hawkish Fed signal under new Chair Warsh and a US-Iran memorandum that eased geopolitical risk. SocGen recommends buying dips.
What signal did the Fed send?
Kevin Warsh chaired his first FOMC meeting; the rate stayed at 3.50%–3.75%.
The key: the Summary of Economic Projections (SEP — the Fed's quarterly rate and growth outlook) showed no rate cuts expected in 2026.
This means → residual rate-cut hopes got squeezed further; "higher for longer" is now the baseline.
Short-end Treasury yields climbed, giving the dollar a carry-trade edge.
Why is SocGen bullish on the dollar?
Chief US economist Jan Groen said explicitly: buy the dollar on dips.
Core logic = US economic resilience → rate advantage lasts longer → the dollar has a floor.
He noted that last week the RBA, Bank of Canada, and Riksbank all held; the BOJ and ECB hiked — yet FX markets barely moved.
In plain terms = rate decisions alone are no longer enough to drive big moves in major currencies.
What about the euro?
Groen sees EUR/USD drifting toward 1.12 over time, not 1.20.
This reflects the eurozone's 2026–2027 growth forecasts being cut more sharply than any other major economy.
Near-term, though, he expects the euro to stay range-bound — a fresh catalyst is needed to break the pattern.
What did other central banks do?
The Swiss National Bank (SNB) held rates but flagged higher readiness for FX intervention — the franc weakened.
Norges Bank also held, yet signaled that the probability of a near-term hike has risen.
The Bank of England announced its decision Thursday; sterling faces dual pressure from policy signals and UK local by-election results.
What does the US-Iran deal mean for markets?
A memorandum of understanding was signed, providing a partial release of geopolitical risk and boosting risk appetite.
But details are contested: Iran says the Strait of Hormuz will not return to pre-conflict conditions and confirms a transit-fee regime for passing vessels.
This means → the "de-escalation" the market has priced is only half the story — whether the 60-day follow-up talks produce a binding final agreement is the real test.
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