The Fed’s newly hawkish tone sent the U.S. Dollar soaring, delivering its biggest two‑day rally in three months as traders price in rate hikes as early as next month. Options markets now price a stronger greenback, forcing macro investors to reassess emerging‑market exposure. Goldman Sachs analysts warned that local rates in developing economies now face a “new adversary” in the Fed.

The dollar surge coincided with record inflows into U.S. equity funds, where investors poured $119.2 billion in the week to Wednesday, according to Bank of America citing EPFR data. That capital rush helped the Nasdaq 100 climb 24% year‑to‑date and the S&P 500 rise 9.6%, buoyed by AI spending and lower oil prices. Fueling optimism, the rally also lifted sentiment on corporate earnings.

Yet the rally carries risk. Bank of America warned that a loss of Republican control in the Senate could trigger a “big dollar down, yields down, stocks down” scenario, pressuring equities and prompting a sell‑off in riskier assets. Investors therefore face a trade‑off between chasing high‑yield dollar exposure and bearing heightened volatility in emerging‑market bonds and the Fed’s upcoming minutes.