US Dollar: Could a dovish Fed surprise push the Dollar lower? - MUFG

Upward pressure on the US Dollar (USD) ahead of the FOMC contrasts with a sharp fall in NZD/USD following the Reserve Bank of New Zealand’s (RBNZ) unexpected decision to hold rates, notes MUFG’s Derek Halpenny. With December largely priced in, he expects the FOMC to leave rates unchanged while retaining a hawkish tone. The Dollar could weaken if there is a dovish surprise, including an emphasis on tighter financial conditions.

How sensitive is the Dollar to the FOMC’s tone?

"The US dollar remains under upward pressure although FX moves are generally well contained – apart from NZD/USD, which is down over 1% following the surprise hold by the RBNZ today."

"The FOMC is very likely to remain on hold but the OIS indicates close to 10% probability of a hike."

"If the press conference is similar in tone to previous public engagements by Chair Warsh he is likely to come across as hawkish."

"Might Warsh give a further nod to tightening financial conditions doing more of the work that could curtail expectations on policy action further out in 2027."

"A hawkish communication is generally expected so any surprise dovish elements would likely have a bigger impact weakening the dollar than a hawkish message would strengthen the dollar further."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)