Markets await the announcement of the next Federal Reserve Chair, with limited USD impact so far as the FOMC is expected to provide balance against a potentially dovish appointee. While Fed credibility concerns may exert some downside pressure on the dollar, EUR/USD is likely to face resistance near 1.18, with choppy trading expected in the months ahead, Rabobank's FX analyst Jane Foley reports.

FOMC balance may temper dovish risks

"Last week, US Treasury Secretary Bessent indicated that the next Fed Chair will be announced this month. While the issue of Fed independence is of considerable concern to the markets, to date the impact on the USD has been limited by the view that the FOMC may be able to provide some degree of balance against a dovish chair. This outlook has found support in the fact that FOMC members have recently expressed a wide range of policy views."

"Also, since all the candidates that have been mooted for the job of the next Fed Chair have credibility as potential monetary policy makers, many commentators have maintained the view that evidence and economics will in any case continue to dominate the decisions of the Fed going forward. Others have argued that while the Fed may tolerate slightly higher inflationary pressures going forward, this will not translate to a complete loss of credibility for the central bank."

"In short, there is a spread of potential outcomes regarding the Fed credibility issue which may imply the potential for some downside pressure on the USD without sending it into free-fall. As the market awaits further clarity on the evolution of the Fed, we expect that EUR/USD1.18 is likely to pose as tough resistance. Overall, we expect the outlook for the currency pair in the months ahead to be dominated by choppy ranges."