US Dollar: Fed hawkish hold fails to extend gains – DBS

DBS Group Research economist Philip Wee notes that the Federal Reserve’s hawkish pause did not sustain the Dollar’s rally, even as US Treasury yields rose. He highlights Kevin Warsh’s cautious tone on future hikes and the importance of upcoming PCE inflation and 3Q26 GDP data. Wee argues resilient growth with easing underlying inflation could challenge market expectations for multiple 2027 Fed hikes.

Fed pause undermines Dollar momentum

"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."