USD sell off ahead of Fed rate meeting
We’ve seen a broad sell-off in the dollar so far this week, as investors position themselves ahead of tonight’s FOMC announcement. Markets now see a 25 basis point cut as a certainty, and there are some strategists that are pencilling in a jumbo 50bp cut.
While we expect two or three of the doves to dissent in favour a larger move, we think that most of the committee will be wary of stoking inflation expectations and spooking the Treasury market.
Chair Powell appears set to strike a dovish note. He will likely no longer describe the jobs market as “solid”, while reiterating that any tariff-induced spike in inflation will probably be temporary.
The “dot plot” will also be shaved lower, with the median dots to possibly show three cuts this year and a couple more in 2026.
It will be interesting to see how the Dollar reacts in such a scenario as this would merely partly, rather than fully, close the gap between the Fed’s interest rate expectations and that held by the market.
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.
