Brown Brothers Harriman’s (BBH) Elias Haddad notes the US Dollar (USD) is extending gains after the latest hawkish Federal Reserve (Fed) hike, even as reopening prospects for the Strait of Hormuz temper the move and weigh on Oil. With multiple Fed officials signaling further tightening and other central banks also hiking, Haddad argues the US growth advantage still skews USD risks higher versus the Euro, Pound and Japanese Yen (JPY).

Fed rhetoric supports Dollar strength

"USD is building on its post hawkish Fed hike gains. Fresh headlines that the Strait of Hormuz could soon reopen has taken some steam out of the USD rally and weighing on energy prices."

"Fed officials indicate more tightening is the pipeline. St. Louis Fed President Alberto Musalem (non-voter) said further rate hikes may be needed to curb inflation, while Chicago Fed President Austan Goolsbee (2027 voter) warned of “more aggressive and more and more front-loaded” rate hikes if demand is overheating."

"Tightening by other major central banks limits policy divergence with the Fed and suggests USD will struggle to make new cyclical highs. But the US growth advantage relative to other major economies skews USD risk to the upside. Tomorrow’s September S&P Global PMI readings will likely show US maintaining its growth edge over the Eurozone, UK, and Japan."

"More Fed officials speak today: New York Fed president John Williams, Fed Vice Chair Philip Jefferson, and Richmond Fed President Tom Barkin (2027 voter)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

MUFG's Lee Hardman highlights the New Zealand Dollar (NZD) as the main overnight mover, boosted by hawkish guidance from Reserve Bank of New Zealand (RBNZ) Governor Breman. His comments on higher Oil-driven inflation have reinforced expectations for a third consecutive 25 bps hike next month. Stronger-than-expected Q2 growth and markets pricing over 100 bps of tightening by next summer underpin the kiwi’s firmer tone.

Kiwi lifted by RBNZ tightening bets

"While rising US rates are encouraging a stronger US dollar, the positive impact is being offset by expectations for further policy tightening outside of the US as well. The bigger mover overnight in the FX market has been the New Zealand dollar."

"The kiwi has been boosted by hawkish comments from RBNZ Governor Breman who indicated that “if higher oil prices persist, they are expected to result in somewhat higher near-term inflation than we assumed” in September monetary policy statement”."

"The comments have reinforced markets expectations for the RBNZ to deliver a third consecutive 25bps rate hike at next month’s policy meeting. It follows stronger than expected growth of 0.2% in Q2 as well."

"The New Zealand rate market is now pricing in around 18bps of hikes for next month and just over 100bps of hikes by next summer."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• WTI falls as Iran offered to reopen the Strait of Hormuz within seven days if the US eases pressure.
• Easing market anxiety from high-volume tanker navigation through the Strait of Hormuz could ease pressure on oil prices.
• Satellite data revealed Saudi Arabia's Gulf terminals hosted supertankers carrying 14 million barrels over the weekend.

West Texas Intermediate (WTI) extends its losing streak after losing daily gains, trading around $90.20 per barrel during the European hours on Tuesday. Crude oil prices lose ground after Kyodo News noted a senior Iranian official, saying that Iran has offered to reopen the vital Strait of Hormuz within seven days on the condition that the United States takes concrete initial steps toward reducing economic and military pressure on Tehran.

The diplomatic proposal was transmitted to Washington through third-party intermediaries as international leaders gather for the United Nations General Assembly in New York. Iranian officials plan to leverage the summit to engage with mediator nations to help de-escalate tensions and revive broader peace talks.

Geopolitical attention remains focused on US President Donald Trump, who is scheduled to address the UN General Assembly later in the day. His agenda includes a possible side meeting with Iranian President Masoud Pezeshkian, alongside planned talks with Chinese President Xi Jinping and leaders from other Gulf nations throughout the week. Additionally, the Trump administration has proposed establishing a $5 billion fund to support the reconstruction of war-damaged infrastructure across the Middle East.

However, oil prices could see downward pressure as market anxiety eased after energy supplies successfully navigated through the Strait of Hormuz over the weekend. Highlighting this flow, Saudi Arabia moved crude through the Strait of Hormuz at a rate of 2.9 million barrels per day over the past six days. Satellite images also revealed supertankers with a combined capacity of 14 million barrels docked at Saudi Arabia’s Gulf export terminals over the weekend, representing the highest tanker count observed since at least June.

Brent slips back toward $100 as Middle East diplomacy hopes build

Strategists at Deutsche Bank highlight that “markets have put in a strong performance over the last 24 hours,” even as Brent crude “briefly [fell] beneath $100/bbl again as hopes grew for a diplomatic solution in the Middle East.” They note that the move in Brent, which saw the benchmark down “-3.40%,” came against this backdrop of improving sentiment around regional diplomacy.

• DXY struggles to capitalize on a modest intraday move up to a fresh high since July 30.
• Easing inflation fears weigh on US bond yields, acting as a headwind for the USD.
• The Fed’s hawkish outlook and geopolitical risks could support the safe-haven buck.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, retreats slightly after hitting a fresh high since July 30 during the early European session on Tuesday. The index, however, lacks follow-through and currently trades just below mid-100.00s, unchanged for the day.

The US Federal Reserve (Fed) last week raised interest rates for the first time in over three years, and the dot plot indicated that officials expect one more hike this year. Furthermore, Boston Fed President Susan Collins and St. Louis Fed President Alberto Musalem explicitly backed the case for further policy tightening as inflation risks remain elevated due to a commodity price shock. Apart from this, geopolitical uncertainties suggest that the path of least resistance for the safe-haven US Dollar (USD) remains to the upside.

In the latest developments, Iran's Islamic Revolutionary Guard Corps (IRGC) warned on Monday that it would change the geography of the war if the US escalates the conflict. Meanwhile, the US is stepping up economic pressure on Iran, warning that Iranian airlines could effectively be shut out of international aviation from September 23. This comes on top of intensifying fighting between the Iran-backed Houthi group in Yemen and Saudi Arabia, which, in turn, validates the near-term positive outlook for the DXY.

Meanwhile, Iran offered to reopen the Strait of Hormuz within seven days if the US lifts its blockade of Iranian ports and halts military operations. The optimism drags crude oil prices to a two-week low, which helps cool immediate inflation fears and keeps US bond yields depressed below multi-year highs. This, in turn, might hold back bulls from placing fresh bets on the DXY, though the supportive fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that the index has topped out.

DXY daily chart

Technical Analysis

The DXU maintains a bullish near-term bias above the 100-day Simple Moving Average (SMA) at 99.90 and has reclaimed key Fibonacci supports around 100.18 and 99.80. Further up, immediate resistance emerges at the 61.8% Fibo. retracement at 100.56, ahead of a higher barrier at the 78.6% level at 101.10, with the recent swing high at 101.78 defining a stronger cap.

On the downside, initial support is seen at the 50% retracement at 100.18, followed by the 100-day SMA at 99.90 and the 38.2% retracement at 99.80, while deeper structural demand is located at the 23.6% level at 99.33 and the anchor low near 98.58.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann see AUD/USD consolidating around 0.7120 after a brief spike to 0.7140. Intraday price action is viewed as part of a 0.7105–0.7135 range. They still hold a negative 1–3 week stance, conditional on resistance at 0.7140, but acknowledge that the probability of a drop to 0.7050 has diminished considerably.

Australian Dollar stuck in tight range

"24-HOUR VIEW: Yesterday, AUD rose briefly to 0.7140 before retreating to close 0.11% lower at 0.7119. The brief advance did not result in any increase in upward momentum, and the current price movements are likely part of a range-trading phase between 0.7105 and 0.7135."

"1-3 WEEKS VIEW: After holding a negative AUD view since last Monday, in our most recent narrative from Thursday (17 Sep, spot at 0.7090), we stated that AUD “is expected to drop to 0.7050.” We added that “we will maintain our view as long as AUD holds below 0.7140 (‘strong resistance’ level).” Yesterday, AUD rose briefly to 0.7140 and then retreated. As our ‘strong resistance’ level has not been clearly breached, we will maintain our negative stance for now. However, the likelihood of AUD reaching 0.7050 has diminished considerably."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

According to a report from Kyodo news, a senior Iranian official has said that Iran will reopen the Strait of Hormuz, a critical chokepoint to almost 20% of global energy supply, within seven days if the United States (US) takes initial steps toward easing military pressure.

Market reaction

A sharp selling pressure is seen in oil prices, following these headlines. At press time, the WTI Oil price is down 1.65% to near $90.00 after giving back early gains.

• The Indian Rupee surrenders its early gains against the US Dollar amid caution ahead of UN General Assembly event.
• Market experts see limited downside for oil prices amid ongoing tensions between Saudi Arabia and Iran-backed Houthis.
• The US Dollar outperformed on strong hawkish Fed expectations.

The Indian Rupee (INR) opens higher again versus the US Dollar (USD) on Tuesday but later gives back its early gains. The USD/INR pair flattens at around 95.82 ahead of meeting between leaders from the United States (US) and Gulf nations regarding the energy supply through the Middle East.

Later in the day, leaders from Gulf nations and the US are likely to have a meeting on the sidelines of the United Nations (UN) General Assembly in New York. Related parties are expected to discuss possible ways to increase the oil supply through the Middle East. US President Donald Trump is also expected to meet Iranian President Masoud Pezeshkian to talk about ongoing conflicts.

A positive outcome of these meetings would be unfavorable for the oil price, which in turn, would ease fears of high inflation expectations globally.

In past few days, the Indian currency gained ground due to the consistent decline in oil prices. As of writing, the MCX Crude Oil contract expiring on October 19 is up 1.5% to near Rs. 8,970, but is still close to its 12-day low of Rs. 8,753 posted on Monday.

Lower oil prices bode well for currencies from economies, such as India, which rely heavily on oil imports to meet their energy needs.

Oil prices have remained under pressure amid optimism that the supply of energy products from Saudi Arabia would improve, as the nation vowed to explore alternatives to increase oil shipments. However, financial market experts warn that the recent decline in oil prices could be limited due to ongoing tensions between Saudi Arabia and Iran-backed Houthis.

Saudi attacks keep oil downside in check

Analysts at OCBC suggest that crude prices may find "some renewed support after fresh attacks on Saudi Arabia over the weekend," with Houthis claiming missile and drone strikes on Riyadh and an Aramco facility at Yanbu. They note that Saudi authorities reported the attacks on Yanbu and several other locations were "thwarted, with no fresh damage to oil infrastructure" so far. Even so, OCBC argues that "weekend attacks on Saudi Arabia keep supply/geopolitical risks alive, potentially limiting near-term downside in oil prices," and that "further downside in oil may be limited unless Saudi flows normalise and attacks on energy infrastructure subside.

Firm hawkish Fed expectations need to be validated by US data

A string of market experts has explicitly said that the recent strength in the US Dollar is backed by Federal Reserve’s (Fed) interest rate hike expectations. Last week, the Fed hiked interest rates by 25 basis points (bps) to 3.75%-4.00% and signaled at least one more this year.

Experts believe that firm hawkish Fed expectations need validation by upcoming US data.

Analysts at HSBC note that the USD “strengthened following the decision.” They highlight that “the median 2026 ‘dot’ implies one additional hike before year-end,” with “a significant minority of participants still anticipating a further rate rise in 2027.” HSBC argues that “this path is more hawkish than a ‘one-and-done’ outcome but remains below current market pricing,” meaning they “do not expect a major repricing of rate expectations or the USD.” Instead, the bank expects that “the market’s attention is likely to focus on whether incoming data validate the final projected increase this year,” suggesting any further Dollar gains will hinge on how the data track against the Fed’s projected path.

Technical Analysis: USD/INR aims to break above 96.00

In the daily chart, USD/INR trades at 95.82, keeping a constructive bullish bias as it holds above the 20-day exponential moving average (EMA) at 95.54. The pair has reclaimed short-term trend support, and the Relative Strength Index (14) near 60 suggests firm but not overextended upside momentum, hinting that buyers remain in control while avoiding overbought conditions.

On the downside, immediate support is seen at the 20-day EMA at 95.53, followed by 95.00. Looking up, the previous week's high near 96.00 is the key hurdle.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• EUR/USD extends losses and hits fresh seven-week lows at 1.1450.
• Concerns about the German government's stability are weighing heavily on the Euro this week.
• French government debt has reached its highest level since 1978, adding pressure on the Euro.

The Euro (EUR) is failing to draw any support from the moderate risk appetite triggered by the recent pullback in Oil prices and extends losses against the US Dollar (USD) on Tuesday, hitting fresh seven-week lows below 1.1450. The growing political uncertainty in Germany, after the defeat of Chancellor Friedrich Merz’s CDU in last weekend’s state elections, has posed a fresh source of weakness for the common currency this week.

Merz vowed to remain in power until the economic reforms planned by his cabinet have been implemented, but the severe defeat in the Mecklenburg-Vorpommern elections, where the CDU failed to reach the 5% necessary to enter the parliament for the first time in postwar Germany has raised serious questions about his support.

But beyond that, Merz's weakness undermines confidence in the fate of the Eurozone’s EUR 2 trillion budget proposal that includes a significant boost to the bloc's defence program, especially if the pro-Kremlin Allianz fur Deutschland (AfD) increases its power in the national parliament. A report by the Financial Times citing German officials involved in the talks affirms that this weekend’s elections have forced the EU to reassess what it could achieve in the coming months.

Concerns about France's debt add pressure on the Euro

Beyond that, a minor rating agency has downgraded France’s government debt, which has reached its highest level since 1978, amid bond market turmoil. This has raised the alarm about more relevant downgrades, as the chances of any significant fiscal tightening being implemented are remote, which is adding pressure on the Euro.

In the calendar on Tuesday, the main event will be European Central Bank (ECB) president Christine Lagarde’s speech at a conference organised by the Ukrainian and Polish central banks. due later in the day. The ECB hiked its benchmark interest rate for the second time this year and hinted at further tightening ahead if inflationary pressures remain high. Lagarde is expected to stick to that message on her public appearances. 

The US Dollar, on the other hand, is "deriving support from the sharp ongoing adjustment higher in US yields," according to analysts at MUFG/BTMU who observe that "the 2-year US Treasury bond yield has already increased by around 55bps since late last month as market participants have moved to price in a more extended Fed rate hike cycle." In their view, "the US rate market is expecting the Fed to deliver three more hikes in the year ahead," a profile that has been "supported by hawkish comments yesterday from regional Fed presidents, although neither is a voting member this year."

• Silver price plunges to near $64.85 amid fears that the Fed could hold interest rates higher for a longer period.
• Fed members warn that strong demand is also fuelling inflationary pressures.
• The Fed is almost certain to deliver one more interest rate hike this year.

Silver price (XAG/USD) is down 1.75% to near $64.85 during the European trading session on Tuesday. The white metal is under severe selling pressure as Federal Reserve (Fed) officials warn that strong demand is also fuelling upside inflation risks alongwith higher oil prices.

Demand-driven inflation leads to the higher interest rates, which remain elevated for a longer term. This is in contrary to supply-driven inflation, such as energy supply shocks, which are considered temporary in nature and influence interest rate expectations for a limited time period.

On Monday, Chicago Federal Reserve (Fed) Bank President Austan Goolsbee said, “Strong demand may be adding to inflation along with energy, tariff, other supply shocks.”

Over the weekend, Minneapolis Fed Bank President Neel Kashkari also said high inflation remains a key concern for policymakers, adding that hot price pressures are not only fuelled by elevated oil prices.

Currently, the CME FedWatch tool shows an almost 90% chance that the Fed will deliver at least one interest rate hike this year.

Meanwhile, investors await the meeting between leaders from the United States (US) and Gulf nations at the sidelines of the United Nations (UN) General Assembly in New York, which is expected later in the day. Leaders from nations are expected to discuss possible ways to increase the oil supply through the Middle East.

Silver Technical Analysis

In the daily chart, XAG/USD trades at $64.90, keeping a bearish near-term tone as it remains capped by the 20-day Moving Average Exponential (EMA) at $65.18. Price trades close to the broken downward resistance trend line, while the Relative Strength Index (14) around 50 hints at neutral momentum that fails to offset the overhead technical barriers.

On the topside, initial resistance is located at the 20-day EMA at $65.18, which continues to limit recovery attempts in the short term. On the downside, the former resistance trend line turning into support around $64.26 is the first level to watch, as a daily close below this area would likely expose XAG/USD to renewed selling pressure.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

John Velis at BNY Markets argues that current US inflation is being driven by non-rate-sensitive components of core PCE, limiting how effective further Federal Reserve tightening can be. He expects one more rate hike in December 2026 but questions whether all the hikes priced for 2027 will be delivered, given the nature of the inflation shock and potential demand destruction.

Policy hikes face structural inflation limits

"We expect the Fed to raise rates once more for 2026 at the December meeting. Into 2027, we’re less sure whether the Fed can proceed with as many hikes as the market has priced in. The answer hinges on how effective tighter policy can be given the current inflation shock."

"If tightening serves to cool demand without affecting those prices that are key contributors to current services inflation, we may see the Fed have to relent next year."

"This isn’t to say we disagree with the move to increase rates, nor the expectation that they’ll continue to rise somewhat. Our point is that the current policy regime is more about preserving credibility and the Fed’s inflation-fighting bona fides than about rate actions that will, by themselves, crimp inflation, unless demand is similarly restrained."

"For now, we understand the market’s hawkish pricing, but we’re watching for the unintended consequences that could change the outlook."

"Even if we were to see some welcome relief on energy prices, a positive supply shock relative to the status quo – and the economy reacting accordingly – doesn’t mean traditional demand-driven inflation can be ruled out."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)