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Market Update

U.S. dollar rallies under threat of additional rate hikes

September 11, 2023
  • amol dhargalkar headshot


    Amol Dhargalkar

    Managing Partner, Chairman
    Global Head of Corporates

    Kennett Square, PA


The U.S. dollar continued its recent upward trend, as markets grappled with hawkish messaging from the Fed and the potential for a November rate hike.

Renewed dollar strength

The U.S. dollar index, which measures USD strength against a basket of major currencies, moved from 100 to 105 over the past few weeks, with another significant jump occurring after Labor Day. The rally is largely the product of hawkish August messaging from the Federal Reserve, with Chair Powell reiterating that future rate hikes may be in order if inflation persists above the long-term 2% target. The dollar is still well below the 20-year highs we saw last fall, and its movement over the next few weeks will likely depend on the outcome the FOMC’s upcoming meeting on September 20, where committee members will provide updated messaging on the likelihood of a November rate hike.

Implications for FX risk management

For U.S.-based corporates that source materials and manufacturing overseas, the recent dollar strength has likely resulted in positive FX impacts to both FX G/L and margin, as domestic sales have appreciated relative to foreign expenses. This is the latest in what has been an up-and-down year for the dollar, with no trends as long-lasting or significant as the depreciation we saw in Q4 of 2022, following historical highs.

For companies with active hedging programs, legging into hedges via monthly or quarterly top-ups can be a good way to overcome short-term market volatility and lock in rates progressively over time. This is a common approach for cash flow programs, but it also comes with some challenges, particularly if stakeholders are interested in analyzing FX and hedging results relative to budget rates, which are typically set at the beginning of the fiscal year.

The week ahead

Last week was relatively quiet on the economic data front, with factory orders coming in at -2.1% (versus a -2.6% consensus) and initial jobless claims slightly below expectations at 216,000. This week will be more eventful, as the CPI reading on Wednesday will set the stage for the September 20 meeting of the FOMC. Markets overwhelmingly expect the target rate to remain unchanged, but a higher-than-expected CPI reading could lock in expectations for a November rate hike.

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Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit