FX Daily: September Fed conundrum remains
At a Glance
Per the full note source, 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 |
|---|---|---|
ING | Bullish | 0.7300 |
UOB | Bullish | 0.7200 |
Rabobank | Bullish | 0.7200 |
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,