USD to grind lower amid 'a couple more' Fed cuts in H1 26

Following Wednesday’s announcement, we are doubling down on our view in favour of two additional decreases to the fed funds rate in October and December, which we think are now almost set in stone.

The Fed has a habit of under promising and over delivering, and we would be very surprised if the FOMC did indeed cut on only one further occasion in 2026.

We think that we’ll see a couple more cuts in the first half of next year, at which point officials will take stock and assess incoming data before committing to further action.

The knee-jerk reaction in markets was to send the dollar lower on Wednesday, which we see as a direct consequence of the Fed’s downward revision to the median dot for 2025.

Yet, a combination of Powell’s less dovish rhetoric, and the limited degree of easing pencilled in for 2026, ensured that the greenback rebounded during the course of the press conference.

With the Fed still retaining a lot more room to cut than its major peers, we are continuing to brace for a mild grind lower in the dollar over the course of our forecast horizon.