FX Daily: September Fed conundrum remains
At a Glance
Per the full note , ING sticks to its call for no Fed hikes this year following a benign core PCE print, but acknowledges the risk that the FOMC could be drawn into a hike by market pricing to avoid bond volatility. The desk flags tomorrow's Jackson Hole speech by Chair Kevin Warsh as pivotal. Our internal coverage shows consensus targets for EUR/USD at 1.17 by Mar-26, with a wide range of 1.12–1.20, and recent ING revisions align. The key catalyst is Warsh's speech, which could shift the September FOMC probability from the current 9bp pricing.
Key Takeaways
- 01ING expects the Fed to hold rates in September, with a benign core PCE supporting the no-hike case.
- 02Market pricing of a 50% hike probability could force the Fed's hand, risking bond volatility.
- 03Kevin Warsh's Jackson Hole speech tomorrow is a pivotal catalyst for the USD.
- 04The USD is expected to weaken if the Fed holds, per ING's call.
- 05Elevated market pricing for a hike suggests near-term USD support may persist.
Full Analysis
What the desk is arguing
The desk at ING argues that the benign core PCE print supports their base case of no Fed hikes this year, but they warn that market pricing may force the FOMC's hand. If markets price roughly a 50% chance of a hike by decision day, the Committee may hike to avoid triggering bond market volatility. Tomorrow's speech by Chair Kevin Warsh at Jackson Hole is flagged as pivotal.
The supporting evidence is the PCE inflation data: core PCE printed in line at 0.2% MoM and 3.3% YoY, suggesting disinflation is on track but gradual. However, headline PCE came in slightly firmer, prompting a small hawkish repricing in the USD curve. The growth side was softer, with real personal spending unchanged despite higher income, as households save rather than spend.
The alternative read would be that the market's hawkish pricing is correct and the Fed will hike in September. The desk implicitly rejects this, leaning on the disinflation trend and softening growth, but acknowledges the risk that the Fed may be drawn into a hike by market dynamics.
Market Implications
Watch USD dynamics ahead of the Jackson Hole speech; a hawkish surprise could trigger further USD strength. EUR/USD is at 1.1679, with consensus targets for Mar-26 at 1.17 (range 1.12–1.20); a dovish Warsh speech could see the pair test the upper end of that range.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Goldman Sachs | Bullish | 0.7000 |
UOB | Bearish | 0.7120 |
Bank of America | Bullish | 0.7000 |
From the original
Articles FX Daily: September Fed conundrum remains Published 08:00 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We read yesterday’s PCE print as benign enough to stick to our call for no Fed hikes this year. But markets are still hawkish,
Related speeches
4 itemsFX Daily: As hawkish as it gets
Per the full note from ING, the September FOMC delivered everything a dollar bull could ask for: a 25bp hike, a dot plot with 12 of 18 members projecting one more move this year and four projecting two, and upward revisions to growth and inflation with a lower unemployment rate. Chair Kevin Warsh explicitly framed policy as having reduced a 'dose of accommodation' rather than being restrictive, which ING reads as a freedom signal: markets can fully price October (currently 13bp) and December (32bp) without the Fed pushing back. DXY rose 0.6% to a two-month high and the two-year USD swap rate jumped 10-12bp, and ING's conclusion is that EUR/USD downside risks remain with oil and risk sentiment in the driver's seat. Our own consensus sees EUR/USD at 1.1700 for Mar-26 (range 1.1200-1.2000) and USD/JPY at 155.00 for Mar-26 (range 149.00-161.71), so ING's hawkish dollar read sits against a consensus that still expects a modestly stronger euro and a modestly stronger yen over the next six months. With no high-impact events scheduled in the next 30 days for these jurisdictions, the near-term path is driven by the residual hawkish impulse and the oil price, not by scheduled data.
Rates Spark: Hike temptation
Per the full note [source], ING's rates desk argues the Fed under Chair Kevin Warsh is tempted to hike despite market pricing for no change, citing inflation risks and credibility concerns. The commentary pegs the odds at 60:40 for a hold, but warns that a 25bp hike now would validate Warsh's price stability focus. With no tracked currency pair in our internal coverage, the note focuses on the Fed's dilemma rather than specific FX impacts.