Thoughts on the dollar and the Fed

Research evidence excerpt

Thoughts on the dollar and the Fed

Deutsche Bank

Research

Foreign Exchange Date

FX Blog 16 June 2026

Tim Baker

Ahead of the FOMC tomorrow, we consider how the dollar might be affected. On Macro Strategist

balance, risks seem tilted to dollar upside. But it’s far less clear that will be +1-212-250-9127

sustained – hence our neutral view.

• FOMC meetings have tended to produce a hawkish reaction in the past

couple of years (figure 1). Yields have generally edged higher, helping the

dollar. (Although interestingly US equities haven’t been too badly

affected.) But this is only a minor signal at best, given the Fed now has a

new chair, and the recent easing cycle looks to be finished.

• The fundamentals seem to argue for Fed hawkishness, if cross-country

comparisons are a guide. The US is #1 ranked in G10 across growth and

inflation, yet it’s priced to hike less than the G10 average over the next

year (31bps, vs ~40bps). Of course, starting points matter, and Fed funds

is on the high side of the peer group already. But a look at rate pricing for

mid-2027 would suggest the Fed could be priced for comfortably over

4% given the data mix (figure 2). Some portion of the market may expect

Warsh to be dovish given the preferences of those that appointed him.

But perhaps there’s an argument that the administration could tolerate

hawkishness coming from a Fed chair it has recently endorsed.

• But would a move higher in relative rates help the dollar much? After all,

there’s already been a hawkish repricing in the past 1½ months (US 2yr

vs peers is +32bps), yet the dollar has barely moved (up just 1%). But that

could be viewed as the rate spreads merely reconnecting to the dollar,

after undershooting (figure 3). From here, further upside in rates on a