Investors holding long USD positions may trim exposure if the FOMC fails to signal a surprise rate hike or September tightening.
Dollar bulls have piled into long USD positions ahead of the FOMC meeting, driven by a rebound in Brent crude from $70 to $100 in July and bets on a surprise rate hike by Fed Chair Kevin Warsh. However, skepticism is growing that markets have overpriced hawkishness, with softer US data and pullbacks in Brent and Treasury yields clouding the outlook.
US Treasury 10-year yields recently eased, though hawks limited the decline to 4.60%, despite signs of a weakening US economy. Warsh has pledged an “honest discussion” among Fed colleagues and a move away from forward guidance, but markets remain uncertain about near-term policy moves.
Traders may reduce long USD exposure if the FOMC does not deliver a hawkish surprise today or signal a September tightening, leaving positions vulnerable to a pullback.