United States Dollar: Warsh guidance shapes dollar outlook – MUFG

MUFG’s Derek Halpenny highlights that Fed Chair Kevin Warsh’s first post-FOMC press conference comes as Brent Oil has dropped sharply, easing near-term inflation risks but not eliminating them. The bank expects the Fed to keep rates unchanged while likely removing the 2026 rate cut from the median dots and dropping the easing bias from the statement, a combination seen as broadly supportive for the Dollar.

Fed dots and guidance in focus

"But this doesn’t imply Fed Chair Warsh will be dovish this evening and inflation risks are likely still a concern."

"A number of the other FOMC members will certainly be still more concerned over inflation risks than at the last SEPs update in March and hence, we will likely see the one rate cut for this year implied by the median dots in March being removed."

"The statement is very likely to show the removal of the implied easing bias with the removal of the word “additional” referring to adjustments to the fed funds target range which would signal the view of the FOMC that the next move could be a hike or a cut."

"Warsh is likely to signal that the policy stance is currently appropriate and given the changes to the statement and the SEPs is likely to be more hawkish, he may be reluctant to push a dovish view at this juncture."

"Still, the large drop in energy prices could well allow him leeway to emphasise the importance of looking through energy price shocks that could help pressure front-end rates and the dollar lower."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)