United States Dollar Index gathers strength to near 100.50 on hawkish Fed signals

The US Dollar Index (DXY) climbed closer to the 100.50 mark on Tuesday, bolstered by hawkish signals from the Federal Reserve (Fed). After a 25 basis points (bps) rate hike, the Fed signaled additional rate hikes this year, marking its first increase in three years. Fed Chair Kevin Warsh emphasized that inflation remains too high, stating that the central bank must be confident that underlying inflation is moving towards its objective at a sufficient pace.

After the Fed's announcement, traders increased their odds for a 25bps hike at the October meeting to 56.5%, up from 43.5% the previous week. St. Louis Fed President Alberto Musalem suggested further rate increases might be necessary to meet the Fed's inflation target. Chicago Fed President Austan Goolsbee warned that the central bank cannot ignore repeated and persistent supply shocks.

As the US and Iran talks resumed at the United Nations General Assembly, traders will closely watch for any progress, which could boost risk sentiment and pressure the DXY. Deutsche Bank highlighted that central bank speakers, including Fed Vice Chair Richard H. Fisher, Fed Chair Jerome H. Powell, ECB President Christine Lagarde, and others, will provide additional monetary policy guidance, potentially impacting risk sentiment and the USD's value.