Forex week in review 38/2026: Fed hikes, BoJ hikes, the dollar wins

This was the week the dollar had been building towards since Jackson Hole. On Wednesday the Federal Reserve raised interest rates for the first time since July 2023 and signalled that more were likely. On Thursday the Bank of England held, though with a sizeable minority voting to hike. On Friday the Bank of Japan raised rates to their highest since 1995 and the yen fell anyway. By the close the dollar index was at 100.22, up about 1.1% on the week and back above 100. EUR/USD broke below 1.15 and USD/JPY recovered more than three yen from the previous week's lows.

The idea to take away from this week is that the market trades the message, not the decision. All three central bank decisions this week were broadly expected. What moved currencies was what each one said about the future: the Fed sounded more hawkish than hoped, the BoJ less. Our guide to central banks and interest rates explains forward guidance and why it often matters more than the rate itself.

The backdrop

Over the previous three weeks the story had swung from the Fed (Warsh's hawkish Jackson Hole speech) to Japan (a yen squeeze that took USD/JPY from above 160 to 152.88) and then to the ECB, which raised its deposit rate to 2.50% on 10 September. Friday's US CPI had shown core prices rising 0.3% in August, a tenth more than forecast, and InvestingLive reported that a Fed hike was fully priced going into Wednesday. A BoJ hike was also widely expected; CNBC said almost 90% of economists it surveyed predicted one.

Day by day

Monday 14 and Tuesday 15 September: the dollar firms

The dollar spent the first two days recovering. The dollar index rose from 99.12 to about 99.65 by Tuesday's close. EUR/USD slipped from 1.1594 to around 1.1538, and USD/JPY climbed back from the low 153s to above 155. Gold futures fell to 4,293 on Monday. Some of this was traders reducing yen longs ahead of the BoJ: when a currency has rallied hard into an event, positions get trimmed beforehand, in case the event disappoints.

Wednesday 16 September: retail sales, UK CPI, then the Fed

Before the Fed, two data releases set the mood.

• US retail sales rose 1.2% in August against a forecast of about 0.8%, the biggest gain in five months, following a revised 0.5% fall in July. Trading Economics reported that core retail sales rose 1.4%.
• UK CPI came in at 3.1% for August, in line with the forecast cited by FXStreet. The Bank of England later noted that about 0.7 percentage points of the overshoot of its 2% target came directly from energy, mainly motor fuels.

At 2:00 p.m. Eastern the FOMC announced its decision: a 25 basis point increase in the federal funds target range to 3.75–4.00%, approved 12–0. The statement said "Inflation remains elevated" and that the action "will support a timelier return to the Committee's 2 percent goal". It noted that job gains had kept pace with the workforce and that unemployment had changed little.

The projections did more work than the decision. According to XTB:

• 12 of 18 officials projected one more hike in 2026, four projected two, and two projected none. Warsh again did not submit a projection.
• The median projected rate path was raised, to about 4.1% for 2026 and 2027 and 3.9% for 2028.
• The 2026 projection for PCE inflation was raised to 3.7%, GDP growth to 2.3% and unemployment was projected at 4.1%.

At the press conference Warsh said the economy was "clearly strengthening and remains resilient", that he was far from calling financial conditions restrictive, and that summer inflation data did not show underlying trends had meaningfully improved. InvestingLive reported that stocks fell during the press conference and that the 10-year Treasury yield pushed back above 5%. JPMorgan's Jordan Jackson read the new "timelier return" language as a sign of waning patience with above-target inflation.

EUR/USD fell about 0.5%, breaking below 1.1500 for the first time since late July according to XTB. The dollar index closed Wednesday at 100.31, its first close above 100 in this run.

Thursday 17 September: the Bank of England

The Monetary Policy Committee voted 6–3 to hold Bank Rate at 3.75%. Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden and Alan Taylor voted to hold; Megan Greene, Catherine Mann and Huw Pill voted to raise to 4%. The minutes said the MPC now expects CPI to reach about 3¾% in the fourth quarter of 2026 and slightly above 4% in the first quarter of 2027, up from its July projections, and that risks to inflation were tilted further to the upside. Services inflation was 3.4% in August, down from 4.5% in March.

A three-vote hawkish minority is normally sterling-supportive, and cable did steady on Thursday. But it was not enough to offset the Fed, and GBP/USD had already touched 1.3337 after Wednesday's decision.

Also on Thursday, Eurostat revised euro-area August inflation down to 3.2% from the 3.3% flash, with core at 2.4%.

Friday 18 September: the Bank of Japan

The BoJ raised its short-term policy rate by 25 basis points to 1.25%, the highest since 1995, effective 24 September. It was the second hike in three months, a faster pace than the six-month gaps of earlier in the cycle. The vote was 7–2: board members Toichiro Asada and Ayano Sato dissented in favour of holding. CNBC reported that Asada pointed to core inflation below 2% and Sato said economic and price developments had not substantially accelerated. Japan's August CPI showed headline inflation of 1.9% and core of 1.7%, according to CNBC.

The yen weakened about 0.45% to 156.64 after the decision. Two dissents and no clear signal about the next move were a disappointment for traders who had bought yen in anticipation. USD/JPY reached 158.05 later on Friday before closing the week at 156.86. The 10-year Japanese government bond yield actually fell 4.9 basis points to 2.947%, according to CNBC, another sign the market read the meeting as less hawkish than feared.

Pair by pair

EUR/USD: through 1.15

EUR/USD opened at 1.1594 and closed at 1.1489, down 0.91%, with a low near 1.1459. The ECB hiked a week ago, but the Fed's message this week moved the expected rate gap further in the dollar's favour. A round number like 1.15 is where many stops cluster, and the support and resistance guide explains why breaks of round numbers tend to accelerate.

GBP/USD: the weaker of the European currencies

Cable opened at 1.3523 and closed at 1.3394, down 0.95%. The BoE split was hawkish on the surface, but a hold is still a hold, and the market had to weigh it against a central bank across the Atlantic that had actually raised rates and pencilled in more.

USD/JPY: the hike that weakened the yen

USD/JPY opened at 153.68 and closed at 156.86, up 2.07%, reversing most of the previous week's fall. It is counter-intuitive for a currency to weaken when its central bank raises rates, but it happens often. The hike was expected, and the yen had risen sharply in the fortnight beforehand. Two dissents and cautious guidance meant the next hike looked further away than some traders had hoped. Meanwhile, the Fed had just pushed US rates higher. The net change in the rate gap favoured the dollar.

AUD/USD and NZD/USD

AUD/USD opened at 0.7164 and closed at 0.7121, down 0.60%, with a low of 0.7080 after the Fed. NZD/USD fell from 0.5815 to 0.5724. A Fed hike narrows the yield advantage that high-rate currencies like the Australian dollar had over the US dollar.

USD/CHF and USD/CAD

USD/CHF rose from 0.8171 to 0.8218, up 0.58%, after reaching 0.8264 midweek. USD/CAD rose from 1.3871 to 1.3982, up 0.80%, and briefly traded above 1.40.

Gold: the exception

Comex gold futures opened at 4,375 and closed at 4,424.90, up 1.14%, despite a stronger dollar and higher yields. They dipped to 4,273 on Wednesday before recovering. Gold does not always follow the textbook relationship with rates and the dollar, particularly when inflation and geopolitical risk are elevated, as they were this week with Brent crude above $100 according to market briefings.

A worked example: why "fully priced" hikes still move currencies

Here is an illustrative way to see it. Say that before Wednesday the market priced the Fed funds rate at 3.875% (the midpoint of 3.75–4.00%) after this meeting and expected one more 25 basis point hike by year-end with a 50% probability. The expected year-end rate is 3.875 + 0.5 × 0.25 = 4.00%.

Now the projections show 16 of 18 officials expecting at least one more hike, and the chair sounds hawkish. Suppose the market raises the probability of a further hike to 70%. The expected year-end rate becomes 3.875 + 0.7 × 0.25 = 4.05%. That five basis point shift in expectations, repeated across the whole curve, is enough to move EUR/USD half a cent. The decision itself (the 25 basis points) was already in the price. The change in probability of the next move was not.

The numbers here are made up to show the mechanism; the actual pricing is visible in fed funds futures and two-year yields. For the same logic applied to data, see how economic data moves forex.

Where the four big central banks stand

After this week, it helps to line up the policy rates of the four central banks that have dominated the last month alongside their latest headline inflation readings. All figures are from the sources listed below.

• Federal Reserve: 3.75–4.00% after Wednesday's hike. PCE inflation was 3.7% in July and CPI 3.4% in August.
• European Central Bank: deposit rate 2.50% after the 10 September hike, effective this Wednesday. Euro-area inflation was 3.2% in August after revision.
• Bank of England: 3.75%, held 6–3. UK CPI was 3.1% in August.
• Bank of Japan: 1.25% after Friday's hike, effective 24 September. Japan's headline CPI was 1.9% in August.

Two things stand out. First, in the US and the UK the policy rate now sits above the latest headline inflation rate, while in the euro area and Japan it is still below it. In other words, real (inflation-adjusted) policy rates remain negative in the euro area and Japan even after their hikes, which is one reason the euro and the yen have struggled to gain against the dollar despite their central banks tightening. Second, the US now has both the highest policy rate of the four and a central bank that has openly pencilled in more. That combination, more than any single decision, is what lifted the dollar index above 100. Interest rate gaps like these also feed directly into the overnight financing on leveraged positions, which our swap and overnight financing guide explains.

What this week teaches

1. Central bank weeks are about guidance. The Fed, BoE and BoJ all did roughly what was expected. Their currencies moved on what they said about next time.
2. A hike can weaken a currency. The yen fell after the BoJ hiked because the hike was priced and the guidance was cautious. Do not assume the textbook direction.
3. Three events in three days compound risk. A position held from Wednesday to Friday was exposed to three separate binary events. If you trade through central bank decisions, our guide to order types explains why stops can fill away from your level when spreads widen.
4. Use the calendar. All of this was scheduled. Our guide to using an economic calendar explains how to plan around high-impact events, including whether to be in the market at all.
5. Know your margin. EUR/USD fell nearly a cent and USD/JPY rose more than three yen. On a leveraged account those are large moves, and the margin call and stop-out guide explains what happens when equity runs low. Most retail CFD accounts lose money; leverage magnifies losses as well as gains.

Scheduled next week (21–25 September)

A quieter week after three central bank decisions. Events on the calendar, listed for planning only:

• Monday 21 September: People's Bank of China loan prime rate fixing. Japanese markets closed Monday to Wednesday for the Silver Week holidays.
• Wednesday 23 September: Flash PMIs for September from the euro area, the UK and the US. US Treasury 5-year note auction.
• Thursday 24 September: Swiss National Bank policy assessment. Australian labour market data for August. US weekly jobless claims. A planned White House meeting between President Trump and China's President Xi.
• Friday 25 September: US durable goods orders and the University of Michigan consumer sentiment survey.
• During the week: Several Federal Reserve officials are scheduled to speak.

For the build-up to this week, see the 7–11 September recap.

Sources

• Federal Reserve: FOMC statement (16 Sep 2026)
• XTB: EUR/USD below 1.15 following hawkish Fed (16 Sep 2026)
• InvestingLive: Fed dot plot backs hawks as Warsh tone rattles markets (16 Sep 2026)
• Bank of England: Monetary Policy Summary and minutes, September 2026
• CNBC: BOJ raises rates to over 30-year high (18 Sep 2026)
• Nation Thailand: Bank of Japan lifts rate to 31-year high of 1.25% (18 Sep 2026)
• InvestingLive: US August advance retail sales +1.2% vs +0.8% expected (16 Sep 2026)
• Trading Economics: US retail sales top expectations
• FXStreet: scattered gains for the euro after the ECB hikes as expected (11 Sep 2026)
• Thrive in Markets: economic calendar, week of 21 September 2026
• Yahoo Finance historical price data (major FX pairs, gold futures, dollar index)