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Dollar seen at risk ahead of Fed decision as markets price limited lift

ING strategists said markets are pricing about a 7bp chance of a hike, implying a potential mechanical move lower in front-end USD rates if the Fed holds.

Reported · Written up by our desk · Major Pairs

ING strategists Francesco Pesole and Frantisek Taborsky expect the Federal Reserve to keep rates unchanged, with two dissenters potentially voting for a hike. They said that setup should limit downside for front-end USD rates if the decision matches expectations.

FXStreet reported ING’s view that the dollar could weaken if precautionary positioning is unwound after a hold. The firm pointed to the US Dollar Index, or DXY, reconnecting with lower oil prices, and it expects downside risks for the currency in the near term.

ING also said markets were pricing a 7bp move for the meeting, roughly a 25.0% to 30.0% probability of a hike. In that scenario, ING argued a mechanical correction lower in short-dated USD rates could follow if rates are held.

The strategists set a technical target as a conditional outcome, saying they expect a test of 101.0 in DXY by the end of the week if conditions remain constructive and there is no more than two dissenters. They added that renewed military strikes in the Gulf have not, so far, severely dented hopes for de escalation, with Brent still below US$90 a barrel.

Latest closeBrent $85.92 ▼2.8%|Dollar index 101.39 ▼0.1%

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