Global FX Strategy: FX Compass: Fed comes into focus

Research evidence excerpt

Global FX Strategy: FX Compass: Fed comes into focus

Global Research

29 July 2026ab

Global FX Strategy FX

GlobalFX Compass: Fed comes into focus

Shahab Jalinoos

Strategist

Figure 1: EURUSD implied vol has increased ahead of the FOMCEURUSD shahab.jalinoos@ubs.com

+1-212-882-5532

Alvise Marino

alvise.marino@ubs.com

+41-44-237 8440

Benjamin Jarrett

benjamin.jarrett@ubs.com

+44-20-7567 5430

Meena Bassily

meena.bassily@ubs.com

+44-20-7567 1145Source:Bloomberg, UBS

Since last week, the market’s focus has shifted away from Mideast tensions to tech stock

stresses. President Trump suspended attacks on Iran to give a chance for renewed talks,

which could help prevent a market upset. Despite this, our view last week that 1m G10

FX implied vol represented value was not entirely off the mark, with 1m EURUSD rising

even as realized vol stayed low.

As for today, the market is clearly divided on the right course of action, with 8bp of rate

hikes still priced in at the time of writing. From our position, the question of post-FOMC

USD direction boils down to the asymmetry between different outcomes. This week we

consider 3 key scenarios and the FX outcomes that each could generate. While there is

one clear path to USD weakness – no rate hike and strong language against pricing for

multiple hikes – more likely outcomes lean in favour of our long-held expectations for

further USD gains. Positioning remains the greenback’s Achilles' Heel right now.

This week’s BoJ rate meeting is not expected to deliver a rate hike. From an FX

perspective, it has been clear for some time that a hawkish BoJ tilt would be the most

productive way in which to stem persistent JPY weakness. But unless Governor Ueda

sends a clear message that a rate hike is very likely by October at the latest, with scope