Dollar Pulls Back After Fed-Driven Rally, Still Above 2.93 Shekels

The dollar eased on Thursday after surging the previous day on the Federal Reserve’s rate announcement and the first press conference by new chairman Kevin Warsh. In Israel, the dollar fell 0.5% to just above 2.93 shekels, while the euro dropped by a similar pace to around 3.38 shekels. In global trading, the euro rose 0.2% to above $1.15 and the pound gained 0.2% to above $1.33.

The Federal Reserve left interest rates unchanged, but markets were shaken by the outlook for possible rate hikes later this year, based on projections from some members of the Federal Open Market Committee. The dollar index climbed 0.5%, and U.S. bond yields rose sharply in response.

Nine committee members expect at least one rate hike by the end of 2026, compared with nine others who see rates staying unchanged or being cut. The two-year Treasury yield, which closely tracks rate expectations, jumped 16 basis points to 4.21% before easing to 4.17%. The 10-year yield rose 1 basis point to 4.50% and later slipped to 4.45%.

Dhiraj Narula, a U.S. rates analyst at HSBC, said the Fed’s hawkish stance on the possibility of higher rates surprised markets. He noted that investors had earlier this week reduced bets on a hike after reports of a U.S.-Iran agreement that included reopening the Strait of Hormuz, which helped push oil prices and bond yields lower. Narula said the FOMC’s “more hawkish than expected” changes, and the fact that nine officials still see hikes this year, supported the immediate rise in short-term yields.

Neil Dutta of Renaissance Macro Research said Warsh’s decision to reduce forward guidance makes a rate hike at any of the next four meetings feel almost like a coin toss. He added that a more hawkish Fed leaves him “more defensive,” because monetary policy is tightening and fiscal policy is also expected to tighten early next year.