Global FX Strategy: Fade EUR rallies if Warsh disappoints hawks

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Global FX Strategy: Fade EUR rallies if Warsh disappoints hawks

Global FX Strategy

15 June 2026 Citi Research

Despite significant interest for Kevin Warsh’s first meeting, we do not expect any

big surprises this week. Market expectations already lean towards a hawkish

statement and SEP: (1) the statement is likely to drop the easing bias; (2) the core

PCE forecast should be revised higher; and (3) the median dot likely shifts to no

change for 2026 (we might even see a dot or two move towards a hike, but this is

more of a risk than a base case). In our view, these changes should not cause a

significant FX reaction, as they are already priced in.

The real uncertainty for markets is what we will hear from Warsh during the press

conference. While many questions and answers will focus on Warsh’s potential

structural changes for the Fed, we think the most immediate focus for FX will be

around Warsh’s attitude towards current market pricing (+18bps of hikes through

year-end, with the first hike fully priced for March 2027). Our base case is Warsh

will rely on his view of providing less forward guidance to give ambiguous answers

towards current market pricing. A potential US-Iran deal and weaker CPI give the

Fed room to look past goods and energy inflation, but with USD longs unwound

(Figure 1) and DXY near fair value (Figure 2), there may be limits to any knee-jerk

USD selling.

Figure 1. USD longs have been unwound pre-FOMC Figure 2. DXY is close to its short-term fair value

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Source: Citi Research, Bloomberg Source: Citi Research, Bloomberg

Ultimately, our medium-term USD view is based on relative growth differentials,