Key Highlights

● The dollar index edged down to 102.16.

● The euro rose against the dollar.

● Short-term yields eased even as long-term yields climbed.

● Other central banks also moved on the same day.

Textbook logic says a hawkish central bank should lift its currency, but the US dollar did not follow the script. The dollar index, which measures the greenback against a basket of major currencies, edged down to 102.16, while the euro rose against the dollar.

The Federal Reserve left its benchmark rate range unchanged in a 10-2 vote, with the statement saying economic activity is expanding at a strong pace while inflation remains elevated, and Fed Chair Kevin Warsh saying the Fed has made clear its willingness and readiness to act.

Why the Dollar Did Not Rally

A few factors help explain the muted reaction. The hold itself was widely expected, so much of the hawkish tilt may already have been priced in, and the short end of the Treasury curve, most closely tied to currency moves, did not climb, with the two-year yield spiking then easing to a slightly lower close.

Other central banks were hawkish too, with the Bank of Canada raising rates for the first time since 2023, narrowing the gap with the Fed, while New Zealand's central bank unexpectedly held rates, a surprise that sent its currency lower.

A Mostly Upbeat Global Backdrop

Risk appetite was broadly positive globally, with South Korea's KOSPI soaring on strength in SK hynix and several other Asian and European markets climbing. A softer dollar can support commodities priced in dollars, and oil surged on Middle East tensions.

On Wall Street, the S&P 500, Dow and Nasdaq Composite all finished higher, and the dollar's next move may hinge on whether the Fed actually follows through with a December hike.