FX Daily: September Fed conundrum remains
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
The primary risk is that market pricing forces the Fed's hand—if Warsh's speech signals a hike, the USD could rally sharply. A resurgence in headline inflation, as hinted by the firmer PCE print, could also tilt the FOMC to act.
AUD/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
ING | Bullish | 0.7300 |
UOB | Bullish | 0.7200 |
Rabobank | Bullish | 0.7200 |
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, and the risk is that the FOMC may be drawn into a hike by market pricing, if only to avoid triggering bond volatility. Tomorrow’s speech by Chair Kevin Warsh could be pivotal.
Meanwhile, CAD and AUD are on very different trajectories Francesco Pesole and Chris Turner Jackson Hole takes centre stage tomorrow as Kevin Warsh delivers what could be a market-moving speech USD: Wait and see ahead of Warsh's speech Data releases in the US yesterday were a mixed bag, offering some support to the dollar but failing to solve the market's conundrum about the September FOMC (pricing now 9bp). Core PCE, the Federal Reserve's preferred inflation gauge, printed in line with expectations at 0.2% month-on-month and 3.3% year-on-year, suggesting disinflation remains on track but at a frustratingly gradual pace. Headline PCE came in slightly firmer at 0.2% MoM and 3.7% YoY, prompting a small hawkish repricing in the USD curve.
The growth side of the report was softer. Real personal spending was unchanged in July despite higher real disposable income, with households opting to save rather than spend. Real household disposable income has effectively flatlined for more than a year.
Overall, we remain reasonably confident in our call for the Fed to hold on 16 September and, by extension, in a weaker dollar. That said, the next three weeks may need to bring a more convincing combination of data and Fedspeak before markets move closer to a hold outcome. Our concern is that, if markets are pricing roughly a 50% chance of a hike by decision day, the likelihood of a hike would increase, as the Committee may be reluctant to risk triggering bond market volatility.
Tomorrow’s speech at Jackson Hole by Kevin Warsh remains a potentially pivotal event for FX, and markets may be reluctant to build excessive USD shorts today. DXY may find support above 99.0 into the speech despite some upbeat risk sentiment after strong Nvidia results. On a separate note, we discuss why we think CAD has further to fall, especially in the crosses, on the back of the latest US-Canada trade tensions here .
Francesco Pesole EUR: Not touched by Russia headlines Energy prices inched higher yesterday after a report suggested the Kremlin is planning a new escalation in the Ukraine war after negotiations for a peace deal reached an end. Reportedly, that could mean an intensification of conventional ballistic missile strikes. The Russia-Ukraine conflict has been completely sidelined by markets for a while, and there was little to suggest hopes of a resolution were building up.
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