FX Daily: Kevin Warsh holds the keys to dollar resilience
At a Glance
The desk underscores that the resilience of the dollar is currently tethered to market expectations regarding Federal Reserve monetary policy, particularly in the wake of the new Chair Kevin Warsh's first meeting. Per the full note from ing-think, while the dollar has shown some strength, risks are increasingly tilted to the downside should the Fed's messaging diverge from prevailing market expectations. The influential role of the Fed's communication becomes crucial, especially with market anticipations pricing in a mere 21bps of tightening by December, considering both the recent dovish sentiment and the implications of the US-Iran deal that places further downward pressure on energy prices.
Key Takeaways
- 01Dollar resilience is contingent on Fed Chair Kevin Warsh's communication and alignment with market expectations.
- 02Recent dovish developments, including the US-Iran deal, pose downside risks to the dollar ahead of the FOMC announcement.
- 03Market pricing currently factors in limited tightening from the Fed, creating sensitivity around any dovish signals.
- 04Expectations suggest the need for the Fed to validate market sentiment to maintain current dollar levels.
Full Analysis
What the desk is arguing
The desk argues that the dollar's ongoing strength is highly contingent on the Fed's stance under Warsh, especially as it faces potential headwinds from several dovish signals. Per the full note, today's FOMC announcement functions as a critical moment to validate market expectations and could ultimately dictate the future trajectory of the dollar.
The focus rests on whether Warsh will align with the market's hawkish outlook or signal a dovish tilt that could undermine the dollar's recent performance. With factors such as Brent crude trading persistently below $80/bbl, the environment supports a narrative where any signs of dovishness from Warsh could swiftly lead to a dollar sell-off.
Where it sits in our coverage
Our current consensus target for EUR/USD stands at 1.1567, with a range indicating a high of 1.2000 and a low of 1.1200 by December 2026. Notable firm targets include deutschebank at 1.2500 and bofa at 1.2200 for the same date, suggesting a spectrum of views on the dollar's future.
This perspective aligns closely with firms like jpmorgan that are more optimistic, while some firms such as bofa currently hold a more bearish outlook, showing divergence in view.
How other firms see it
Aligned firms such as deutschebank and mufg also maintain bullish projections for the USD, reinforcing the narrative that growth expectations could support current dollar levels. Conversely, firms like bofa and rabobank espouse a bearish stance, suggesting potential weakness in the dollar outlook.
As part of the FX landscape, we also see the EUR/USD trajectory as influenced by positions taken by the ECB and their potential rate hikes, making it an ideal pair to monitor alongside Fed communications.
Market Implications
Traders should watch for the next price point around 1.1500 in EUR/USD as a key level, while also keeping an eye on the FOMC announcement for signals that may propel the dollar's movement. Additionally, the balance of energy prices should inform positioning ahead of upcoming Fed communications.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Bank of America | Bearish | 1.1200 |
ANZ | Bearish | 1.1400 |
UOB | Bullish | 1.1565 |
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Articles FX Daily: Kevin Warsh holds the keys to dollar resilience 07:51 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Brent is holding below $80/bbl after details of the US-Iran deal emerged, adding a dovish argument ahead of the FOMC announceme
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4 itemsFX Daily: Warsh should keep the dollar supported
The desk anticipates that the dollar will remain well-supported, particularly in light of statements expected from Kevin Warsh at the ECB's Sintra conference. Per the full note [source], Warsh's hawkish tone following last month's FOMC meeting has shaped market expectations, with anticipated Fed tightening priced into the curve. Given stronger economic signals, including a recent core PCE print of 3.4% YoY and a robust jobs report, the environment favors dollar strength as traders await further indications from Warsh about monetary policy direction.
FX Daily: Pre-FOMC positioning may favour the dollar
The desk sees potential for dollar strength leading up to the FOMC meeting, as market participants position themselves for any hawkish surprises. Per the full note from ing-think, there is apprehension regarding forward guidance from Chair Kevin Warsh, indicating that traders might favor holding dollars as a hedge. With the recent drop in oil prices providing some support to EUR/USD, the overall sentiment is still cautious, primarily if geopolitical tensions do not ease further. Importantly, the upcoming GDP data will likely influence dollar positioning further, with current market pricing indicating only minor adjustments—8bp for Wednesday and a cumulative 41bp by year-end.