The dollar rallied in the hours leading to the FOMC announcement on the back of growing hawkish bets, which were, however, scaled back after the statement release. Despite the post-FOMC correction, DXY is still trading above Tuesday’s close, signalling that there is probably not enough in the Fed communication to build fresh USD shorts, ING’s FX analysts Francesco Pesole notes.
The 103.0 level seems like a good support for USD bulls
“The revision lower in the dot plot, from 25bp to 50bp for 2025, is still more hawkish than market pricing (65bp) and the Fed’s greater uncertainty on unemployment also came with warning signals on inflation, effectively arguing against imminent dovish turns. We see no reason to change our call for two 25bp cuts in 2025.”
“Our bullish dollar views are also broadly unchanged. The reduction in quantitative tightening and Chair Powell’s downplaying of recession and long-lasting inflation risk helped US equities, and today’s futures also point to an open in the green. The rotation from US to European stocks hugely contributed to EUR/USD strength, and signs that this driver is fading are reinforcing our bearish view on the pair heading into the second quarter.”
“There are a few important data risk events for the dollar in the coming weeks, where the relatively unchanged Fed pricing will be tested. Barring an immediate deterioration in jobs or core PCE, we still think the start of universal US tariffs on 2 April can bring about fresh support for the greenback. For now, support around 103.0 in DXY can be as good as it gets for dollar bulls.”