DBS Group Research’s Philip Wee notes that the US Dollar (USD) has strengthened, with the US Dollar Index (DXY) at its highest since May 2025 after a hawkish Federal Open Market Committee (FOMC). He highlights that US exceptionalism is being questioned by an equity selloff and AI-related tech weakness. Wee flags tomorrow’s US Personal Consumption Expenditures (PCE) inflation release as a key risk for the Dollar’s current dominance.

DXY strength meets inflation test

"The DXY Index has risen by 1.3% to 101.41, its highest level since May 2025, following the hawkish FOMC meeting on June 16-17."

"However, the US exceptionalism narrative pushing this USD rally is not supported by the stock market rout amid Fed-hike worries."

"The futures market has priced in a 54.6% chance of a 25-bps hike to 4.00% at the September 16 FOMC meeting."

"This leaves the current setup vulnerable to any surprises in tomorrow’s PCE inflation print, where markets are aware that lower crude and pump prices have created a disinflationary veneer ahead on the headline front."

"By attempting to pre-commit to a policy trajectory, the Fed inadvertently breeds a market echo chamber that prices in rigid central bank promises rather than evolving economic fundamentals."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)