US Dollar: FOMC risk guides downside scope – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret note the US Dollar (USD) is narrowly mixed to softer ahead of the Federal Open Market Committee (FOMC), with swaps pricing a modest chance of a hike but the bank seeing that risk as much lower. They argue policy is unlikely to change until Federal Reserve (Fed) operating reviews are complete. The analysts add that a hold without guidance would likely see the Dollar ease, with US Dollar Index (DXY) weakness below 101.10 signaling further short‑term losses.

Fed hold seen capping Dollar upside

"Swaps continue to price in the non-negligible risk (33%) of a tightening today but that is well below the level (80%+) that has conventionally signaled (pre-Warsh, admittedly) that the Fed was likely to adjust policy."

"Still, the chance of a rate increase today is low—much lower even than swaps are pricing—in our opinion."

"A rate move (either way) seems unlikely until these reviews are complete."

"If the Fed holds and there is no guidance, the USD is likely to ease."

"DXY losses below 101.10 intraday would signal scope for further USD losses in the short run."