US Dollar Gains Ahead of Fed Decision as Investors Hedge Against Hawkish Surprise

The US Dollar may gain support ahead of the Federal Reserve's policy decision this week, according to ING. Despite widespread expectations that interest rates will remain unchanged, investors are positioning themselves for a potential hawkish surprise from Chair Kevin Warsh.

ING notes that Warsh has expressed skepticism about providing strong forward guidance, which reduces confidence in the Fed clearly signaling its next move. This uncertainty, combined with ongoing geopolitical tensions, may encourage traders to retain long Dollar positions.

Goldman Sachs also expects the Federal Reserve to leave interest rates unchanged this week but acknowledges that energy prices and geopolitical risks have intensified, making the policy outlook more finely balanced.