US Dollar could weaken if Fed delivers a dovish surprise - MUFG

A surprise decision by the Reserve Bank of New Zealand (RBNZ) to leave rates unchanged has weighed heavily on NZD/USD, while the US Dollar (USD) faces upward pressure ahead of the FOMC, according to MUFG’s Derek Halpenny. His expectation is for unchanged FOMC rates alongside a hawkish message, with December largely priced in. A dovish surprise, potentially involving an emphasis on tighter financial conditions, could leave the Dollar weaker.

Dollar Faces Sensitivity to 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.)