US Dollar: Dovish Fed surprise could weaken the Dollar - MUFG
MUFG’s Derek Halpenny notes the US Dollar (USD) is under upward pressure ahead of the FOMC, with NZD/USD hit hard after a surprise Reserve Bank of New Zealand (RBNZ) hold. He expects the FOMC to keep rates on hold but maintain a hawkish tone, with December largely priced.
Derek Halpenny of MUFG observes that the US Dollar (USD) is experiencing upward pressure prior to the FOMC meeting, with NZD/USD facing significant losses due to the Reserve Bank of New Zealand (RBNZ) holding its rates. The Federal Open Market Committee (FOMC) is expected to maintain interest rates while adopting a hawkish stance, with December largely factored in.
Any unexpected dovish shift, such as a focus on more stringent financial conditions, could weaken the US Dollar. It is highly probable that the FOMC will keep rates steady, though there is nearly a 10% chance of a rate hike based on the Overnight Index Swap (OIS) market. If Chair Kevin Warsh's post-meeting remarks echo his previous public appearances, he may appear hawkish.
A more aggressive tightening of financial conditions, as hinted at by Warsh, could further erode expectations of future monetary policy actions beyond 2027, prompting a more substantial depreciation of the USD.
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