Fed meeting minutes strike a hawkish tone! Most officials support another rate hike this year; the dollar extends its gains.

On Wednesday, the latest meeting minutes released by the Federal Reserve showed that all 19 officials supported a September rate hike, with most participants believing that further increases in interest rates may still be needed before the end of the year. Although market bets on an immediate October rate hike have clearly cooled, the Fed's hawkish stance continues to provide support for the dollar. At the same time, concerns triggered by France's fiscal situation pushed European bond markets under pressure again, and the euro fell sharply on Wednesday, gradually approaching the 17-month low touched earlier this week on Monday. At the Fed's meeting held on September 15-16, the target range for the federal funds rate was raised by 25 basis points to 3.75%-4%, the first rate hike since July 2023. However, officials differed somewhat on the rationale for the hike. Some participants believed that higher interest rates would help prevent energy and other price shocks from further pushing up inflation; more hawkish officials argued that, with U.S. economic demand remaining strong, higher rates had become a necessary measure to guard against demand-driven inflationary pressures. The meeting minutes showed that most participants believed another increase in the target range for the federal funds rate before the end of this year could be appropriate. Several officials also said that the underlying growth momentum of the U.S. economy appeared to have strengthened. At the same time, despite the recent notable rise in long-term U.S. Treasury yields, many officials believed that financial conditions overall were still supportive of economic growth, with U.S. stocks rising significantly this year and corporate bond credit spreads remaining at low levels. Fed Chair Warsh said at a press conference after the September meeting that the rate hike was intended to withdraw some policy accommodation because inflation remained elevated. However, Fed Vice Chair Jefferson and New York Fed President Williams both signaled a more cautious stance last week, saying the Fed had time to further observe economic data before deciding whether to continue raising rates. This led the market to significantly reduce bets on a consecutive rate hike in October. CME FedWatch data show that the market currently expects the probability of at least a 25-basis-point rate hike at this month's Fed meeting to be about 19.4%, down from about 38% a week ago; however, the market-implied probability of a December rate hike is still 83%, indicating that investors still believe there is a relatively high possibility of further monetary tightening within the year. After the release of the meeting minutes, the dollar maintained its gains. The dollar index, which measures the greenback against a basket of major currencies, rose 0.32% to 102.24. The recent stay of energy prices at high levels also provided some support for the dollar. Juan Perez, senior trading director at Monex USA, said that in an environment where access to energy resources is difficult, the dollar is usually favored by capital. At the same time, fiscal risk in European markets became another main theme in the foreign exchange market. France's fiscal situation continued to trigger investor concerns, pushing up French and Italian government bond yields, with bonds from more heavily indebted countries seeing more pronounced selling, while traditional safe-haven assets such as Germany performed relatively steadily. The yield on France's 10-year government bond surged 11.9 basis points on Wednesday to 4.8696%, on track for its largest one-day increase in two weeks; over the same period, the yield on Germany's 10-year government bond was basically flat at 3.4805%. This means the financing cost gap between France and Germany widened further, reflecting investors' demand for higher risk compensation to hold French government bonds. French bonds have recently continued to face pressure. As the 2027 election approaches, French political circles are still finding it difficult to form an effective consensus on reducing the budget deficit, while global central bank rate hike expectations and concerns about government fiscal conditions have further pushed up bond yields. Spain's announcement of an early general election also intensified market concerns about European political uncertainty. Bank of France Governor Emmanuel Moulin said that as financing costs rise, France's economic situation is indeed relatively severe, but it has not yet reached the point of needing assistance from the European Central Bank. French Finance Minister Roland Lescure said France will adopt a "strategic" approach when issuing new debt in the future. Shriya Samarth, head of rates for Europe, the Middle East and Africa at StoneX, believes that French government bonds still have room for further declines, but that does not necessarily mean the market will fall into panic. She pointed out that France is not currently sending signals that it is close to debt default, so the situation has not reached the severity faced by Greece during the European debt crisis. Rising French fiscal risk combined with a stronger dollar has clearly weighed on the euro. The euro fell 0.53% against the dollar on Wednesday to $1.1198, gradually approaching the 17-month low set on Monday. Sterling fell 0.42% against the dollar to $1.3216, although sterling at one point rose to its highest level against the euro since June 2025. As for the yen, the dollar edged down 0.09% against the yen to 157.95. New Bank of Japan board member Ayano Sato said she supports raising interest rates in stages, which provided some support for the yen.