USD: Fed may defy dovish bets for now – ING

The US Dollar (USD) enters FOMC day with a good deal of bearish momentum. Despite Treasury Secretary Scott Bessent’s attempts to quell recessionary fears, high-frequency indicators have kept pointing down and still favour a rotation away from US assets. The latest Fund Manager Survey from Bank of America showed a record gyration from US to European equities and 69% of respondents believed US exceptionalism is over. One positive takeaway for the dollar is the radical increase in pessimistic views on global growth too, ING's FX analyst Francesco Pesole notes.

DXY rebounds may be capped around 104.0

"For the near term, the best chance at a rebound for the greenback is probably today’s FOMC announcement. The chances of a cut are none, but the recent repricing in the USD curve suggests some dovish tweaks to forward guidance are expected by the market. We are not convinced. The Fed has an inflation and employment mandate, and neither of those has declined enough to warrant a dovish shift." 

"Growing pessimism on growth and consumption still needs to face the hard data test, and if the US administration can stomach the equity correction, the Fed probably can too. Things should change in the coming months as the US slowdown (but not a recession, in our view) unfolds, and we expect two cuts in 2H25. However, the FOMC median dot plot may not be revised lower today, so still signals only one cut in 2025."

"Markets will be sensitive to growth and inflation forecasts too, but if we are right with our dot plot call and Fed Chair Jay Powell retains a cautious tone on easing, the dollar should be able to rebound. Still, to have a sustained USD recovery, US macro sentiment must start to stabilise. Until that happens, DXY rebounds may be capped around 104.0."