USD could struggle to recover today, but risks appear tilted to the upside – ING

Economists at ING expect the Federal Reserve to hike by 25bp today and signal 90bp of extra tightening this year in its Dot Plot projections. The move is fully priced in and it might end up having a contained impact on FX. However, with a lot of optimism in the price, the risks appear tilted to the upside.

Not much support for USD from the FOMC announcement

“We expect the median Dot Plot to signal 90bp of further tightening by the end of the year. We expect Powell to reiterate the Fed’s commitment to fight inflation and to keep the overall policy message firmly on the hawkish side, despite the recent headwinds to growth.”

“We think the Fed message today should confirm that monetary policy is set to prove a medium-term positive for the dollar. That said, barring a major upside surprise in the Dot Plots, we suspect the post-FOMC impact on USD could prove rather contained and short-lived, leaving the dollar somewhat vulnerable to the current risk-on environment.”

“It must be acknowledged that a risk-on environment is mostly hanging on some optimism around peace talks and not on any actual de-escalation, and there is surely a risk that markets have moved too fast too soon towards the optimistic side of the spectrum.” 

“The dollar could struggle to recover today, but with a lot of optimism in the price, the risks appear tilted to the upside.”

See – Fed Preview: Forecasts from 14 major banks, raising rates but with a huge asterisk related to the war