Dollar holds steady after Fed pause, but the rate outlook stays unclear

what happened

The dollar was little changed on Thursday after the Federal Reserve left interest rates on hold, an outcome most had anticipated. The vote split 10 to 2. The central bank raised its view of the economy, which it now describes as expanding at a robust clip. Fed Chair Kevin Warsh said inflation could return to the 2% goal without slowing growth or lifting unemployment, and traders responded by paring wagers on rate increases in 2027.

The euro dipped 0.15% to $1.1134 in early Asian trade, while the dollar rose 0.14% against the yen to 158.045. Warsh offered no clear hint on a December move, so markets read his tone as dovish. The FedWatch tool showed traders pricing a 78% chance of a hike in December. The dollar index stood at 102.26, and the two-year Treasury yield fell to 4.678%, according to Reuters.

Attention now shifts to the ECB and the Bank of Japan. Separately, the Reserve Bank of New Zealand unexpectedly kept its rate at 2.75%, sending the kiwi down as much as 1.7% at one point. The Bank of Canada lifted its policy rate for the first time in over three years and warned that more increases might be needed as energy costs push up prices.

why it matters

The key takeaway for markets is the shift in expectations. Without a clear signal on December, yields may trade in a narrow band until jobs and inflation data arrive. The softer read caps dollar gains, though the tightening already priced in still supports it, and ING analysts expect consolidation near the top of recent ranges.

market impact

Dollar and FX pairs: shifting rate expectations give mixed pressure on the dollar

• ↔US dollar mixed — a December hike remains likely, but Warsh's dovish tone limits gains

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