DXY: Fed guidance and cuts repricing in focus – Deutsche Bank

Deutsche Bank economists expect the Federal Reserve (Fed) to keep rates on hold, with markets focused on forward guidance and any shift toward more two‑sided language. They note that the probability of a Fed cut by December has fallen sharply as consumer confidence surprises to the upside and Treasury yields edge higher, supporting the Dollar outlook.

Fed decision and cuts repricing

"Looking ahead to today, the main highlight will be the Federal Reserve’s latest policy decision. They’re widely expected to keep rates on hold, so the focus will be on their forward guidance for what they’re thinking about future policy."

"Our US economists think the key question is whether they formally adopt two-sided language about the policy outlook in the statement, and whether Chair Powell indicates a more balanced risk assessment in the press conference."

"Their base case is that the Fed will wait until June for meaningful changes in guidance, but the risk is that communications skew hawkish."

"In fact, the probability of a cut by December was down to just 24% by the close, having been at 35% on Monday, so it’s seen as an increasingly unlikely prospect."

"This backdrop saw the 2yr Treasury yield (+3.8bps) rise to 3.84%, though the 10yr yield (+0.6bps) was more stable at 4.35%."

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