US Dollar Gains Stall Despite Hawkish Fed Hold – DBS

US Treasury yields rose, but the Dollar’s rally lost momentum following the Federal Reserve’s hawkish pause, according to DBS Group Research economist Philip Wee. With PCE inflation and 3Q26 GDP figures due, Wee draws attention to Kevin Warsh’s caution over further rate increases. In his view, continued resilience in growth alongside easing underlying inflation could call into question market expectations for multiple Fed rate rises in 2027.

Dollar loses momentum after Fed’s hawkish pause

"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.)