Fed Preview: The main upside risk for the US Dollar is a revision higher in the dot plots – ING

FXStreet Insights Team FXStreet

Economists at ING analyze US Dollar’s outlook ahead of next week’s Fed meeting.

Dollar’s yield position is strong, even without a hawkish Fed

We recently stressed the upside risks for the Dollar given its still strong underlying yield position, and we are finally observing some USD buying across the board. The coming days will tell us where the FX market is positioning itself in the hawkish-dovish surprise spectrum for the Fed meeting.

We believe hawkish bets may be misplaced again this time as the Fed should reiterate a relatively optimistic narrative on disinflation and still hint at monetary easing ahead.

The main upside risk for the Dollar is a revision higher in the dot plots, but even then, we struggle to see this having a prolonged impact on FX if – as it appears likely – the Fed will continue to point to the crucial role of upcoming data releases, which are generally expected to start showing some signs of softening.

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