US dollar reigns supreme: Is the market getting carried away?
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September was a very busy month in the FX market, dominated by a host of major central bank meetings. Events kicked off with the ECB, which delivered a \\u2018dovish hike\\u2019, whereby it raised rates, but suggested that there was minimal appetite to hike again. Investors were taken aback by the Bank of England\\u2019s decision to hold rates steady, after the August UK inflation report missed expectations.\\xa0
On the flip side, the Federal Reserve adopted a hawkish stance, keeping rates unchanged, although indicating in its \\u2018dot plot\\u2019 that it foresees one final hike by year-end. These hawkish communications, and recent strong US data, have led to a sharp move higher in US Treasury yields, with the 10-year yield rising to a 16-year high around 4.8%. \\xa0
This has triggered an aggressive rally in the US dollar against almost every other currency. The USD index has risen by more than 6.5% since mid-July to its highest level since November.
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