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Market expectations lean towards a more accommodating stance from the Federal Reserve in today’s announcements, but we anticipate Chairman Powell will seek concrete evidence of economic deceleration and maintain a cautious approach for the time being.
Should our projection of an unchanged median dot plot prove accurate, the US dollar possesses the potential for a resurgence. However, a sustained recovery hinges on the stabilization of overall macroeconomic sentiment.
Despite attempts by Treasury Secretary Scott Bessent to alleviate concerns of a recession, high-frequency data continues to trend downwards, favoring a shift away from US assets. A Bank of America survey indicated a significant shift from US to European equities, with a majority believing US exceptionalism has ended.
The most immediate opportunity for a dollar rebound likely lies in today’s FOMC announcement. While a rate cut is improbable, market pricing reflects expectations of adjustments to forward guidance. We disagree.
With the Fed focused on inflation and employment, neither has weakened enough to justify a dovish pivot. Pessimism regarding growth requires validation through hard data. If the US administration can withstand the equity correction, the Fed likely can as well.
