Fed Caution Powers Dollar to Its Best Quarter Since 2016

Fed Caution Powers Dollar to Its Best Quarter Since 2016

The U.S. dollar is headed for its best quarterly stretch in eight years, powered higher by the expectation that the Federal Reserve won't lower interest rates by much next year.

The WSJ Dollar Index, which tracks the greenback against a basket of 16 foreign currencies, is up 7.1% since Oct. 1. Barring an unexpected drop on Tuesday, that will be its biggest three-month percentage gain since the final quarter of 2016.

It's all about the Fed. Chair Jerome Powell signaled to investors that the central bank may only cut rates twice in 2025 earlier this month, with inflation still running above its 2% target. When borrowing costs are higher, currencies appeal more to foreign investors seeking out higher yields–and that's why the buck looks more attractive than rivals right now.