Above: Federal Reserve Chairman Jerome Powell. Image © Federal Reserve.
The Federal Reserve will struggle to dent dollar weakness into year-end, say analysts at UBS ahead of 2025's final set piece.
The Fed will cut rates and will update its guidance, with some analysts saying the outcome could boost the dollar.
The thinking is that the Fed will deliver a cut, but won't commit to further such moves, making for a 'hawkish' cut.
Indeed, economists at UBS flag the risk that Chair Powell might further push back against priced-in rate cuts.
On balance, this would bolster the dollar.
However, UBS FX strategist Alvise Marino says markets might be less reactive than usual to potentially hawkish comments by Chair Powell, given that current pricing is for the Fed to end its easing cycle slightly above neutral.
This is "not a very dovish outlook."
In short, the market is still potentially 'hawkishly' positioned on the dollar heading into today's decision.
It also means there's still scope for the market to tilt in a dovish direction and price in further cuts in 2026.
"The softer inflation backdrop, the impending Fed leadership transition, resurgent FOMC composition risks and the timing of US employment data, out next week, add to our assessment," says Marino.
"Barring a strong upward surprise in the latter, we remain biased towards USD weakness extending into year end," he adds.