USD 'at a crossroads' ahead of Fed meeting as race for Chair approaches 'end game'

The US Dollar Index collapsed to its lowest level since the beginning of 2022 overnight in response to President Trump’s comments that have been seen as a clear admission that the White House is not at all concerned with the recent dollar slide. The dollar now stands at somewhat of a crossroads.

Up until now, the sell-off we’ve seen in the greenback has been fuelled primarily by fears over erratic White House policymaking and the fallout from the sharp drop in the USD/JPY pair. Yet, there will now emerge genuine lines of thought among market participants that this may merely be the opening act of a more coordinated policy effort from the Trump administration to actively pursue a weaker dollar.

Tonight’s FOMC policy announcement, which is usually the number one focus for investors, is fading somewhat into the background.

There will be no change in rates, nor do we expect Chair Powell to hint at further easing any time soon. Perhaps the biggest intrigue will be his response to any questions in the press conference about the recent dollar slide. Markets are also placing some weight on whether Powell will continue to serve as a Fed governor once his term as chair ends in May, so any remarks pertaining to this could be noteworthy.

The race to replace Powell as chair appears to be entering the end game (an announcement is expected any day), with BlackRock executive Rick Reider now the surprise frontrunner - we’ll provide more of our thoughts on this on Friday.