DXY cam retest the 100.5 recent lows into the FOMC

“Helping the dovish case overnight were some remarks by former FOMC member Bill Dudley, who explicitly said he would push for a 50bp cut were he still in the committee. He said in particular: ‘It’s very unusual to go into the meeting with this level of uncertainty – usually the Fed doesn’t like to surprise markets’. It may mean that markets themselves can tilt the balance towards a half-point move should their dovish bets be pent up into Wednesday’s meeting. There were also some media reports suggesting it would be a close call between 25bp and 50bp, which contributed to the dovish repricing.”

“We recently called for subdued USD performance into the US election. Unless the Fed surprises with a hawkish cut, we think even a dovish 25bp move can prevent a sustainable dollar recovery. Investors will also monitor the direction of US election polls in the coming days. Kamala Harris is openly calling for another debate, but Donald Trump has ruled it out. Remember that Harris is seen as a more dollar-negative candidate, and if her good momentum extends from the debate into the polls, we would really need some data/a Fed surprise to take the dollar higher.”