US Dollar: Hawkish hold tempers USD strength – ING

ING's Knightley and Turner highlight that a neutral‑hawkish Fed hold has slightly weakened the Dollar, reversing positioning that had shifted toward a rate hike. They argue EUR/USD is now likely to trade in a 1.14–1.15 range, with a more durable Dollar setback depending on sustained lower Oil prices and softer US jobs and inflation data that could undermine expectations for a September hike.

Dollar softens after close Fed call

"The FX market, perhaps more than any other class, had been shifting towards a hike today and keeping the dollar broadly bid. The decision itself has seen the dollar a little weaker, largely in line with what had been priced into the FX options market, and the dollar sold off a little more in the press conference."

"Today’s events will be a disappointment for those who felt Kevin Warsh could have flexed his hawkish muscles and left the FX market back to trading US data and what volatile oil prices mean for monetary policy."

"For FX, the reaction at the long-end of the bond market is partially reversing the narrative of a tough Fed assuaging concerns about the dollar de-basement trade. EUR/USD probably needs to trade more in a 1.14-15 range now, but a more sustainable rebound requires a sustained period of lower oil prices and US jobs and price data convincing the markets and the Fed that a September rate hike is no longer required."

"This is especially so given Warsh’s strong pitch today that the message from the markets has become more direct – and the current message is that the Fed will hike in September."

"Overall, today’s press conference can add to the sneaking suspicion that the Fed will talk tough but won’t hike and the market conviction over a September rate hike may well come under pressure."