ING strategist Francesco Pesole argues that a hawkish revision of the Federal Reserve Dot Plot could support the Dollar, with markets already pricing limited cuts. Pesole sees the Dollar’s recent weakness as positioning rather than geopolitics and expect only a short-lived positive Dollar reaction as oil-driven headlines continue to dominate.

Fed reassessment seen backing Dollar

"The dollar’s slip yesterday appeared more a symptom of position squaring ahead of today’s FOMC risk event rather than a signal of further optimism on geopolitics."

"The Fed will keep rates on hold, but the risks are clearly of a hawkish revision in the Dot Plot projections, with the median currently signalling one rate cut by year-end. That matches current market pricing (-27bp for December), and the dollar should benefit from a revision to no cuts in 2026."

"We see a high risk that the Fed will revise its median Dot Plot to signal the next cut only in 2027. That could influence markets in a meeting where caution could be the name of the game, given the highly volatile situation. We see upside risks for the dollar."

"Markets will need to read into new projections to infer some policy response framework, but we think rate expectations will remain fluid and tied to oil market swings even after this Fed meeting. Accordingly, we expect a positive, but short-lived response by the dollar, with geopolitical headlines quickly back in the driver’s seat."

"In terms of dovish risks, reintroducing “downside risks” mentioned in the statement’s section about jobs could help markets maintain expectations for a cut on a dual-mandate rationale."

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