UOB analysts note the broad Dollar index DXY fell for a second day to 99.57 as traders positioned ahead of the Fed decision and reacted to geopolitical tensions around Iran. The bank highlights that markets expect the Fed to keep rates unchanged while revising inflation forecasts higher and still projecting one 25 bps cut this year.

Greenback softens into Fed decision

"The broad dollar index (DXY) fell for a second consecutive day and closed lower by around 0.1% to settle at 99.57 on Tue."

"In the countdown to the Fed decision, officials are widely expected to hold rates steady on Thu (2AM, SGT), with attention shifting to how they may respond if the fallout from the war pulls their policy goals in opposite directions."

"The statement likely will acknowledge risks from the Iran war and add two-sided language around the rate path, flagging upside risks to inflation as well as downside risks to employment."

"In the Summary of Economic Projections (SEP), market also expects policymakers to very likely sharply revise up this year’s PCE inflation forecast due to the war, while marking down activity slightly."

"The median participant likely still anticipates one 25bps rate cut this year."

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