FX Daily: Fed hold can hit the dollar today
The desk argues that a Federal Reserve hold at today's FOMC meeting could lead to downside pressure on the U.S. dollar as market participants unwind precautionary positioning. Per the full note from ing-think, the consensus among analysts is pointing towards a hold, despite two dissenters advocating for a rate hike. This scenario implies a correction in front-end USD rates and reinforces the view that declining oil prices will negatively impact the dollar. Current conditions suggest that EUR/USD could be bottoming out, while the likelihood of broad support for year-end rate expectations remains intact.
What the desk is arguing
The desk posits that maintaining the current Fed rate could pressure the dollar lower, specifically as traders recalibrate their positions. According to the source, current market expectations are pricing in a 25-30% chance of a hike, indicating a cautious stance. This suggests a looming mechanical adjustment in USD rates is on the horizon should the Fed opt to hold.
With the Fed anticipated to maintain its policy rates unchanged, the potential unwind of precautionary USD positions should allow the greenback to better align with the signals from dropping oil prices, which have been largely ignored in recent days. The noted dissenters at the Fed, while indicative of some hawkish sentiment, may not be sufficient to prevent a dollar pullback as market narratives shift.
Where it sits in our coverage
Our internal consensus for AUD/USD is currently at 0.7000 (range: 0.6600–0.7300), with goldman forecasting a target of 0.7000 by December 2026 and morganstanley at the same mark. On the contrary, commerzbank projects a more bullish figure of 0.7100 for December 2026.
This view aligns with the prevailing sentiment seen across the currency markets, where several firms are bullish on the outlook for the Australian dollar against the backdrop of a Fed hold. The desk believes that the current spot position and consensus maintain a chance for upside on AUD/USD, especially given market expectations surrounding oil pricing and Fed policy.
How other firms see it
A number of firms are aligned with our view that a Fed hold could negatively affect the dollar, including jpmorgan and goldman, underscoring a shared perspective on potential downside risks. Conversely, firms like bofa dissent, suggesting a more bearish outlook on the AUD/USD pair, believing potential Fed action may lend strength to the dollar.
Market participants should also remain cognizant of the EUR/USD trajectory, particularly in relation to expected ECB actions. Watching these dynamics could shed light on broader market shifts as sentiments around the Fed evolve.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01A Fed hold may pressure the dollar downwards today
- 02Dissenting opinions within FOMC could signal underlying tensions
- 03EUR/USD may have found a near-term low
- 04Lower oil prices could negatively impact dollar strength
Market implications
Traders should monitor the EUR/USD pair as it approaches resistance levels. Given the current positioning, any notable movements post-FOMC could indicate a fresh narrative in the market. Additionally, watch for potential implications on AUD/USD as precautionary positions get unwound.
Risks to this view
A sudden surprise rate hike by the Fed would likely invalidate the current dollar-bearish positioning, resulting in a swift reversal of the current market trends. Additionally, any significant geopolitical events or demand shocks in the oil market could exacerbate movements in USD valuations.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Nomura | Bullish | 0.7200 |
Rabobank | Bullish | 0.7200 |
Bank of America | Bullish | 0.7000 |
Articles FX Daily: Fed hold can hit the dollar today Published 08:00 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The consensus view for the FOMC today may be a hold, with two dissenters voting for a hike. That might prevent a material downward correction in rates, but the dollar may still fall as precautionary positioning is unwound and the greenback reconnects with lower oil prices. This means EUR/USD might be past its lows Francesco Pesole and Frantisek Taborsky All eyes today are on the FOMC meeting.
Pictured: The Federal Reserve building in Washington, which is still under construction USD: Dollar to reconnect with lower oil after Fed hold Our Fed preview , published last week, argued that precautionary positioning for a potential surprise Fed hike could keep the dollar supported going into today’s FOMC announcement. That appears to have been the case. Despite softer consumer confidence data and de-escalation headlines weighing on the dollar yesterday, DXY has shown little sensitivity to the recent decline in oil prices.
But that resilience will be tested heavily today. Markets are pricing in 7bp, or about a 25-30% probability of a Fed hike today. That, in theory, implies a mechanical correction lower in front-end USD rates if – like we expect – rates are kept unchanged.
That said, great attention will be on the vote split. It seems to us that consensus expects two dissenters – Logan and Hammack – to vote for a hike. In that case, year-end rate expectations (41bp) may remain broadly supported, but we would still see downside risks for the dollar.
The rationale links back to our first point. A Fed hold should trigger an unwinding of precautionary USD positioning, allowing the dollar to reconnect with the signal from lower oil prices. The resumption of military strikes in the Gulf overnight does not seem to be severely denting markets’ hopes for de-escalation, with Brent remaining below US$90 a barrel for the moment.
In other words, unless Fed Chair Kevin Warsh surprises with a hawkish spin, or we see more than two dissenters, we think the dollar will come under pressure today. If constructive headlines from the Gulf return, we expect a test of 101.0 in DXY by the end of this week. Francesco Pesole EUR: Looking back to 1.15 soon?
The resumption of military strikes overnight is a reminder that caution remains warranted on EUR/USD. Even so, if markets are right to maintain a broadly constructive view on further de-escalation, there is a good chance the pair bottomed out last week. For a sustainable move back above 1.15, two pieces are still missing: dovish Fed repricing, either through US data or communication, and a stabilisation in risk sentiment.
Sources & References
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