USD WILL COME UNDER RENEWED DOWNSIDE PRESSURE IF THE FED POWERS FORWARD WITH A DOVISH OUTLOOK – BBH

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The US Dollar (USD) is consolidating Tuesday’s gains. Economists at BBH analyze how the US Dollar (USD) could react to the Fed’s decision.

The risk is the Fed’s new funds rate projections imply less easing over 2024 and 2025

The two key points to scrutinize are: (i) The press release. A dovish risk is the press release is tweaked to signal greater confidence that inflation is moving sustainably towards 2%, in line with recent comments by Chair Powell. (ii) Summary of Economic Projections. Sticky underlying US inflation and an encouraging economic growth outlook suggest the risk is the Fed’s new funds rate projections (the so-called Dot Plot) imply less easing over 2024 and 2025. 

If the Fed turns less dovish, the USD rally will get turbocharged as Fed funds rate expectations adjust higher. In contrast, if the Fed dismisses the latest high US inflation readings as noise and powers forward with a dovish outlook, USD will come under renewed downside pressure.

 


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