Fed Hold Expected to Spark Dollar Sell-Off

ING strategists Francesco Pesole and Frantisek Taborsky expect the Federal Reserve to keep interest rates unchanged, but two dissenters may vote for a hike. This could limit any decline in front-end USD rates.

The dollar's recent resilience is expected to be tested today, as markets price in a 7 basis point increase or about a 25-30% probability of a Fed hike.

Pesole and Taborsky argue that precautionary positioning for a potential surprise Fed hike has kept the dollar supported. However, they believe this support will be unwound if rates are kept unchanged.

The strategists expect the resumption of military strikes in the Gulf to have little impact on markets' hopes for de-escalation, with Brent crude oil prices remaining below $90 a barrel.