The hawkish stance of the Federal Reserve boosts bullish confidence, and the US dollar strengthens for the second consecutive trading day.

After the Federal Reserve released a clear hawkish signal, the US dollar strengthened for a second consecutive trading day and further approached the high point set at the end of March. The market is quickly betting that the Fed may start a rate hike cycle as early as next month, pushing funds back into dollar-denominated assets. As of Thursday, the Bloomberg Dollar Spot Index has risen by about 1% since before the Fed interest rate meeting. At the meeting held on Wednesday, Fed chair Kevin Wash emphasized the central bank's primary responsibility to curb inflation, and the latest economic forecasts show that several officials expect to raise rates by the end of this year. With market expectations for future rate hikes heating up rapidly, US short-term bond yields have surged, enhancing the attractiveness of dollar-denominated assets for global investors. The euro fell to its lowest level since March, the Canadian dollar hit a 7-month low, and the yen fell to its lowest level since July 2024. Analysts point out that the hawkish signal released by the Fed has reignited bullish sentiment towards the dollar. In the past few months, the dollar had gained support due to the rise in oil prices and increased safe-haven demand amid US-Iran tensions. Now, market focus is shifting back to the US economic fundamentals and monetary policy outlook. Lee Hardman, a strategist at Mitsubishi UFJ Bank, said, "The Fed's hawkish policy signal is driving the dollar to break out into a new round of strength, and its influence is even more significant than the bearish impact that the US-Iran peace accord has on the dollar." As the US and Iran reach a peace agreement and international oil prices fall, the market is reassessing the resilience of the US economy. Analysts believe that the US economy's growth remains robust amid the artificial intelligence (AI) investment boom, while inflation has recently risen to nearly double the Fed's 2% target, reaching its highest level in about three years. In this context, bond markets have quickly adjusted their expectations for the interest rate path. Traders generally believe that the Fed is highly likely to raise rates by 25 basis points at the September meeting, with some investors even starting to bet that action could be taken as early as July. Additionally, the market expects another rate hike before the end of the year. The change in rate expectations has further widened the yield advantage between the US and other major economies, enhancing the attractiveness of dollar-denominated assets. Alex Cohen, a foreign exchange strategist at Bank of America, said, "The clear hawkish signal from the Fed meeting is definitely positive for the dollar." Skylar Montgomery Koning, a macro strategist at Bloomberg, also believes that the previous narrative in the market about the Fed possibly turning dovish is rapidly disintegrating. As investors gradually shift their focus from the Middle East situation to economic data and policy outlook, the dollar is expected to further strengthen. However, some institutions remain cautious about the medium to long-term outlook for the dollar. Ugo Lancioni, a senior portfolio manager at Neuberger Berman with assets under management of $576 billion, said the company remains bearish on the dollar in the medium to long term because of its currently high valuation. However, he also pointed out that strong US macroeconomic data, inflation pressures from energy price shocks, and the AI investment cycle will continue to support the dollar performance in the short term. Market positioning data shows that fund inflows betting on the dollar are continuing to increase. According to data from the US Commodity Futures Trading Commission (CFTC) as of June 9, speculative funds such as hedge funds and asset management firms hold a net long position of $27.8 billion in the dollar, the highest level since February 2025. Jane Foley, head of foreign exchange strategy at Rabobank, stated that the Fed meeting "reactivated the bullish camp for the dollar," and market optimism about the dollar's outlook is clearly on the rise.