US Dollar: Why did the Fed’s hawkish hold fail to drive further gains? – DBS

The Dollar’s rally lost momentum despite rising US Treasury yields, as the Federal Reserve’s hawkish pause failed to sustain the advance, according to DBS Group Research economist Philip Wee. With Kevin Warsh taking a cautious stance on further rate hikes, Wee points to the forthcoming PCE inflation and 3Q26 GDP releases as key signals. In his view, resilient growth alongside easing underlying inflation could call into question market expectations of multiple Fed rate hikes in 2027.

Why did the Fed’s pause fail to sustain the Dollar rally?

"The Fed’s hawkish hold was not enough to sustain the USD’s rally. The divergence between a softer DXY and higher US Treasury yields was particularly noteworthy."

"Fed Chairman Kevin Warsh’s refusal to affirm a December hike leaves markets reliant on today’s PCE inflation and 3Q26 GDP reports for guidance. Although the headline numbers are likely to be higher, markets may scrutinise the underlying composition of inflation and growth."

"September’s headline PCE inflation is expected to increase to 3.6% YoY (0.5% MoM) from 3.4% YoY (0.3% MoM) in August, with core inflation increasing less by 3.1% YoY (0.3% MoM) from 3.0% YoY (0.2% MoM). Advance estimate for 3Q26 GDP growth is expected to accelerate to an annualised 3.2% QoQ saar from 2.2% in 2Q26, while personal consumption expenditure is anticipated to slow to 3.4% from 3.8%."

"A combination of resilient growth and easing underlying inflation should prompt a reassessment of the multiple 2027 Fed hikes projected by markets."

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