Dollar upside is limited ahead of Fed meeting as Ebury sees 'modestly Dollar-bearish'

Matthew Ryan, CFA Ebury

We do not see the hot September CPI report as enough to justify another hike as soon as October. We continue to call for a move in December, but do not see the case for further tightening in 2027.

Wage pressures are cooling, and the surge in long-dated Treasury yields is already tightening financial conditions and doing part of the heavy lifting. An escalation in Iran or another nasty inflation surprise poses a risk, but we see the bar for a faster pace of hikes as much higher than market pricing suggests.

With markets bracing for a hold, and for hawkish rhetoric that hints at, without firmly committing to, a December hike, the dollar’s reaction to Wednesday’s FOMC meeting could be unusually contained.

The greenback’s muted response to the September CPI report suggests that most investors who want to long the dollar already are, and with futures pricing around a 90% chance of a December hike, we see limited room for near-term upside.

Beyond this week, we continue to see the balance of risks as modestly dollar-bearish over the medium term, particularly as we remain unconvinced that further hikes are warranted in 2027.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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