USD Risks Seen Today

The US Dollar is on watch today as traders brace for two key USD-linked events with Treasury Secretary Scott Bessent’s testimony due followed by the May FOMC meeting later on. Ahead of these events, USD is trading a little softer today which is somewhat surprising given the news overnight that the US and China will begin formal trade negotiations next week aimed at scaling back recent trade tariffs. The softness in USD suggests some caution from traders given the unpredictable nature of Trump’s trade policy and the risk that the talks don’t happen. As such, it might be that we don’t see a USD rally materialise until the talks get underway next week.

FOMC In Focus

Looking ahead today, the main focus will be on the FOMC meeting this evening. The Fed is widely expected to keep rates on hold while offering some pushback against near-term rate cut expectations. However, these expectations have shifted recently with the market no longer pricing a cut in June, instead looking for a reduction in July. Any hawkishness from the Fed, such as warnings of inflationary pressures linked to the trade war, could see this forecast being pushed out further.

USD Impact

In terms of the expected USD impact from today’s meeting, it would likely take a meaningful hawkish surprise to help drive USD higher here. Given the residual risk premium linked to uncertainty around US trade policy, the spike in Asian currencies and the caution around US/China negotiations, USD looks likely to remain muted on the back of the meeting today while any dovishness from the Fed could drive fresh selling.

Technical Views

DXY

The rally in DXY has stalled for now into the 100.38 level. With price still in a bear trend, focus is on a fresh turn lower while this level holds with 97.78 the initial downside target. If we break higher here, 101.91 an the bear channel highs will be the first hurdle for bulls.