USD: Limited risk of an FOMC dovish tilt today - ING

Today's FOMC meeting is not anticipated to be a big market-moving event. The Fed needs to see significant economic weakness and lower inflation to justify further rate cuts. For the moment, the job market and wages are gradually cooling, but not enough for resuming easing. According to market pricing, the conditions for a cut won't be in place until June, ING's FX analyst Francesco Pesole notes.

USD is set to consolidate gains

"The greater risk of a dovish repricing now is another sharp tech-led equity selloff rather than a tilt in communication by the Fed, in our view. Despite the slightly lower-than-expected inflation in December, the strength of the jobs market should keep Chair Jerome Powell's communication on the cautious side and markets may still lack a catalyst to price in more than the 50bp of cuts currently in the curve by year-end."

"The themes of tech stock turmoil - even though sentiment stabilized yesterday - and the Fed's independence in light of President Trump's insistent calls for lower rates may be raised at the press conference. However, we don't think equity volatility this week has raised enough concerns at the FOMC about the potential knock-on wealth effect to warrant a comment by Powell. And expect a firm reiteration of the independence from political pressure."

"If US tech stocks enjoy another calm day and the Fed remains cautious on easing as we expect, the dollar should consolidate gains as the revamped universal tariff risk justifies the current short-term USD overvaluation."