Dollar Jumps After Fed Holds Rates, Projects One Hike

The dollar surged after the Federal Reserve held its benchmark rate steady and updated projections to show one rate increase later this year. The median dot plot shifted higher, reducing the scope for the 2025 cuts that markets had been pricing since January. The dollar index climbed roughly 0.6% on the session, reversing a two-day slide.

The decision landed as a hawkish surprise. Futures markets before the announcement implied a roughly 30% chance of a rate cut by December. That probability collapsed after Chair Jerome Powell said the committee sees little progress on inflation in recent months and needs greater confidence before easing.

The reaction was clean. Two-year Treasury yields rose 12 basis points to 4.18%. The yield on the benchmark 10-year note added 8 basis points. Higher front-end yields make dollar-denominated assets more attractive, widening the rate advantage over the euro and yen.

EUR/USD gave back earlier gains and slipped back toward the 1.0300 handle. The euro had rallied in the run-up to the meeting on expectations the Fed would open the door to cuts. That bet reversed sharply. The EUR/USD profile shows the pair is now testing the 50-day moving average, a level that held as support in early March. A break below would open the path toward the October low near 1.0200, several traders said.

GBP/USD followed a similar path, dropping about 0.8% to test the 1.1800 zone. The pound had drawn support this month from sticky UK services inflation, which kept the Bank of England in a hawkish posture. The gap between the two central banks narrowed after the Fed's dot plot. Sterling traders now watch the next UK CPI print due in two weeks for clues on whether the BoE can hold its position.