US Dollar: Hawkish Fed supports Dollar against Euro - Danske Bank

Danske Research Team explains that the Dollar strengthened after the Fed’s unanimous 25bp rate hike and hawkish risk assessment, which emphasized upside inflation risks. Markets pushed the Dollar higher alongside short-term US Treasury yields, while strong August retail sales data reinforced the perception of resilient US growth and accommodative monetary policy.

Fed stance lifts US currency

"In the US, the Fed delivered a 25bp rate hike with unanimous support, while the updated dots were modestly hawkish relative to expectations. Fed chairman Warsh highlighted that he and the monetary policy committee still see monetary policy as accommodating growth."

"The new 2026 dot points to one more hike, in line with consensus and our expectation, while the 2027 median signals no further tightening, although eight participants still see rates rising to 4.25-4.50%, consistent with our call. Growth was revised slightly higher for both this year and next, while inflation expectations were broadly unchanged."

"The statement was largely unchanged, with only a small addition noting that domestic spending has been resilient, and there were no changes to balance sheet policy as expected."

"The risk assessment was hawkish, as no participants now see risks tilted towards weaker GDP growth or labour markets, allowing the Fed to focus more clearly on upside inflation risks, which nearly all participants continue to highlight."

"EUR/USD declined sharply below 1.15 after the Fed's hawkish rate hike last night with an unanimous decision and 16/18 participants foreseeing another hike before year-end, and 8/18 expected a hike also in 2027. Similarly, US rates rose significantly across the curve with 2Y USD swap rates rising 10bp and 10Y USD swap rates rising 6bp following the decision."

"EUR/USD moved modestly lower, consistent with the hawkish interpretation. "