Fed hikes to 4% and signals another; dollar index tops 100, gold slides

The Federal Reserve raised rates for the first time since 2023 and pencilled in one more hike this year. The dollar index broke above 100, gold fell to a one-month low near $4,250, and the loonie slid to its weakest level since early August.

The Fed hikes and points higher

• The Fed raised its target range by a quarter point to 3.75-4.00% in a unanimous 12-0 vote, its first increase since July 2023. A week earlier an Action Forex note had investors split on whether it would move at all.
• The FOMC's new projections put rates at 4.1% by the end of 2026, up from 3.8% in June, which implies one more hike this year, and lifted the PCE inflation projections. Chair Kevin Warsh said inflation trends were "not passing the test".
• The data going into the decision pointed the same way: US retail sales rose 1.2% in August against a 0.8% forecast, and sales excluding autos also beat.

The dollar breaks out, the metals fold

• The US Dollar Index (DXY) broke above 100.00 after the decision, back above both of its long-run averages, from the two-week high near 99.60 it reached again on Tuesday.
• EUR/USD fell to just under 1.1500, the level Tuesday's close near 1.1540 had left in view. The euro has fallen in every session since the ECB raised its deposit rate on 10 September, and Wednesday's drop was the biggest of the run.
• Spot gold rallied as high as $4,366 ahead of the decision, above the $4,328 level that had capped it on Tuesday, then sold off to around $4,250, a fresh one-month low, as the dollar rose and the US 10-year yield reached 5.00%. Silver fell with it, to around $62.70.

Oil eases as the Saudi pipeline recovers

• WTI fell about 3.3% to around $97.50, back below $100, as Saudi Arabia stepped up efforts to restore flows through its East-West pipeline, the route that lets its crude bypass the Strait of Hormuz, and added a route through Oman. An unexpected build in US crude inventories added to the drop; the Fed decision itself drew little reaction.

The hike, currency by currency

• The Canadian dollar, or loonie, fell to a six-week low. USD/CAD rose 71 pips, or 0.51%, to just under 1.4000, its sixth straight day higher. The Bank of Canada has held at 2.25% through seven meetings, the latest on 2 September. Separately, President Trump signed a memorandum to remove Canadian-origin goods from federal procurement.
• GBP/USD fell about 0.7% to just under 1.3400. The midpoint of the Fed's new range, 3.875%, now sits above the Bank of England's 3.75% for the first time this year, on the same day UK CPI rose to 3.1% from 2.9%, in line with the forecast.
• USD/JPY rose for a third straight session, Wednesday's gain the largest of the three, and traded just under 156.50 after the decision as the yen gave back more of its earlier rally.
• AUD/USD dropped more than 20 pips on the decision to below 0.7100, and NZD/USD fell for a sixth straight session, toward its July low.

Our gauges

• Our MRS closed at 69, up from 62 on Tuesday, with the move coming from its volatility component. The CTS held at 76 for an eighth consecutive close, and the FSI eased to 61 (Greed) from 63.
• No currency led our strength gauge clearly, and on the day the Fed hiked the dollar spent the fewest minutes on top of all eight majors: 110 of 1,440. That was the session most likely to hand it the lead, and it did not take it, which is the way the test our weekly wrap left open is pointing. Two of that test's three central banks, the Bank of England and the Bank of Japan, have yet to decide.
• The kiwi was the clearest laggard, at the bottom for 18% of the session. It also held the largest share at the top, 17%, but only 1.25 points clear of the next currency, inside the margin we treat as no leader at all.

What comes next

After the close, New Zealand's second-quarter GDP grew 0.2%, beating the 0.1% forecast, but NZD/USD stayed below 0.5750. The Bank of England decides today at 11:00 UTC, expected to hold at 3.75%, and the Bank of Japan follows on Friday with a hike to 1.25% fully priced.