ING’s Chris Turner notes the Dollar is holding gains after the Federal Reserve’s hawkish shift under Chair Kevin Warsh, with markets pricing about 44bp of tightening by Q2 2026. ING’s house view is that US inflation may edge lower later this year, allowing the Fed to avoid a full tightening cycle and keeping DXY capped near its recent 12‑month range highs.

Fed repricing limits dollar upside

"The dollar is holding gains, but probably does not need to rally too much more. The market now has 44bp of Fed tightening priced in by the second quarter of next year, which looks close to the type of modest adjustment most Fed members pitched in their Dot Plot projections. And with rate cuts still envisaged for 2027 and 2028, this Fed profile is supportive of the tone we took in this month's FX Talking: Dollar Decline Delayed (not abandoned)."

"DXY tested the top of its 12-month range at 100.50/60 yesterday. And while the dollar may stay bid, we do not see a catalyst for a major upside breakout. This is especially so given lower energy prices on the US-Iran deal being signed and a supportive risk environment."

"With nine of the 18 Fed members seeing at least one hike this year, the Fed looks prepped to move should inflation continue to drift in the wrong direction. Without any forward guidance in the curtailed FOMC statement or in Warsh's press conference, it will therefore be interesting to see whether Fed members are allowed to say anything about the future policy path in their speeches. These will start next week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)