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Dollar faces Fed-driven skew as futures price 38% surprise hike chance

DBS says USD bulls could be disappointed if the Fed holds rates and scales back forward guidance, with futures assigning a 38% chance of a surprise hike at Kevin Warsh’s second FOMC meeting.

Reported · Written up by our desk · Major Pairs

The US dollar is trading on diverging themes against developed market and Asia ex-Japan currencies, with expectations for the Federal Reserve at the center of market positioning, according to DBS Group Research via FXStreet.

DBS’s Philip Wee said Fed-related dynamics are key because futures are pricing a 38% chance of a surprise rate hike at Fed Chairman Kevin Warsh’s second FOMC meeting. Wee also warned USD bulls could be disappointed if the Fed stays on hold and ends forward guidance.

With a two-day FOMC policy meeting beginning later Tuesday, traders appear hesitant and are waiting for the outcome before making aggressive directional bets, supporting US dollar demand as it sits near monthly highs.

In the same pre-Fed cautious backdrop, GBP/USD remained defensive near 1.3300 and EUR/USD consolidated near its monthly trough in the mid-1.1300s, FXStreet said.

Latest closeEUR/USD 1.137 ▼0.0%|GBP/USD 1.329 ▼0.2%

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