Experts agree: Further US Dollar’s upside hinges on upcoming data and not hawkish Fed prospects

The US Dollar (USD) experienced a slight increase on Monday as market participants maintained confidence in the Federal Reserve's (Fed) decision to raise interest rates again during the year. The US Dollar Index (DXY), which measures the Greenback's value against six major currencies, rose 0.1% to approach 100.30. The US Dollar was the strongest among the major currencies during the past week.

According to the CME FedWatch tool, the probability of the Fed conducting at least one more rate hike this year stands at nearly 88%. Prior to the Fed's most recent policy announcement, the US Dollar gained 0.5%. Experts believe the strength of the DXY is attributed to rising expectations of additional Fed interest rate hikes. However, they emphasize that sustaining strength and further gains will depend on upcoming US economic data.

Analysts from HSBC note that the USD strengthened following the Fed's decision, with the median 2026 "dot" suggesting an additional rate hike before the end of the year. While some participants anticipate a further rise in rates in 2027, HSBC does not expect a significant shift in rate expectations or the USD. Deutsche Bank's Jim Reid and his team highlight that the focus will shift towards the October FOMC meeting and the upcoming payrolls report, which they consider crucial for assessing whether Fed policy is becoming more restrictive and validating the recent strengthening of the US Dollar Index.

OCBC analysts also mention that the Fed's renewed tightening bias should provide some support to the USD in the near term, but caution that the hurdle for another meaningful leg higher may be higher after the recent repricing. In their view, further gains for the US Dollar might require higher yields or robust economic data that reinforce expectations for additional tightening.

Overall, the strength of the US Dollar appears to hinge on the upcoming economic data and not solely on hawkish Fed prospects.