Warsh Guidance Keeps Greenback Supported Amid Fed Rate Decision

ING strategists Francesco Pesole and Frantisek Taborsky are closely watching the Federal Reserve's interest rate decision, expecting a 25bp hike to 4.0%. They believe that markets fully expect this outcome, with a surprise hold seen as material negative for the US Dollar.

The ING team thinks that the FOMC is likely aware of Treasury risks and will keep a hawkish tone. Chair Kevin Warsh's openness to further tightening supports the Dollar and discourages large USD shorts.

Markets are pricing in 23bp for today, 52bp by year-end, and 89bp by June. A surprise hold would likely deliver a big blow to the dollar, both through dovish repricing in front-end rates and a selloff in the back end.