Dollar on Brink as FOMC Decision Looms

The US dollar is expected to fall on the heels of the Federal Open Market Committee (FOMC) decision today, despite a potential hold in interest rates. According to market expectations, there's a 7bp chance of a Fed hike, which implies a mechanical correction lower in front-end USD rates if rates remain unchanged.

However, two dissenters, Logan and Hammack, are expected to vote for a hike, which could keep year-end rate expectations at 41bp. This would still pose downside risks for the dollar as a Fed hold is likely to trigger an unwinding of precautionary USD positioning.

The resumption of military strikes in the Gulf overnight has not severely dented markets' hopes for de-escalation, with oil prices remaining below $90 per barrel. If constructive headlines from the Gulf return, we expect a test of 101.0 in DXY by the end of this week.