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The DXY is sitting at 99.8 after a 4 percent rally from its February lows. Brent won’t stay below $104. February PPI came in at double the forecast. The FOMC announces at 2pm Eastern today and nobody expects a cut. What they do expect is the dot plot to tell them whether the cuts are coming at all.
The hold is priced. CME FedWatch had it above 99 percent going into the session. The fed funds rate stays at 3.50 to 3.75 percent, where it’s been since the December cut. That part doesn’t move your book.
The dot plot does.
What Changed Since December
The last Summary of Economic Projections, released on December 10, projected yearend 2026 PCE inflation at 2.4 percent, GDP growth at 2.3 percent, and a median dot pointing to one 25 basis point cut. The committee was already split three ways: four members saw no cuts, four saw one, and four saw two. Stephen Miran sat alone at 2.00 to 2.25 percent, the most dovish dot on the board. In January, Miran and Waller dissented, voting for a 25 basis point cut against the majority hold.
Then Iran happened.
Brent pushed above $100 on March 13 for the first time since August 2022 after Tehran’s new Supreme Leader declared the Strait of Hormuz would remain shut. WTI hasn’t settled below $95 since. February headline PPI landed at +0.7 percent month-on-month, more than double the 0.3 percent consensus, per the Bureau of Labor Statistics. Core PPI came in at +0.5 percent against the same 0.3 percent forecast. CPI held at 2.4 percent year-on-year, but the energy pass-through hasn’t fully landed yet. It will.
JPMorgan’s David Kelly expects the committee to revise its 2026 inflation forecast upward, potentially to 3.5 percent. Goldman’s desk sees a similar move. If the median dot shifts from one cut to zero, that’s the signal. The market has already priced out any easing before September at the earliest, per CME futures, with only a single reduction expected this year. A hawkish dot plot would confirm what the curve is already telling you.
The Dollar Setup
The DXY rallied from 96 in mid-February to test 100.5 earlier this month before easing to 99.8 going into today’s session. The move was almost entirely driven by safe-haven flows and the repricing of rate expectations. BofA’s quant models flagged further upside. Morgan Stanley’s house view is that the dollar bear market doesn’t resume until H2 2026. For now, the greenback is the only major currency where the central bank isn’t expected to cut or hasn’t already hiked into the oil shock.
Speaking of hikes. The RBA delivered 25 basis points yesterday, taking the cash rate to 4.10 percent in a tight 5-4 vote. Governor Bullock cited persistent inflation and energy costs. The Aussie was the week’s best performer against the dollar, gaining 1.33 percent. EUR/USD is trading above 1.15 on the back of broad dollar softness that crept in Monday after oil eased briefly on Hormuz tanker passages. NZD led the move, up 1.54 percent.
If Powell sounds hawkish today, expect those moves to reverse fast. The dollar’s pullback this week is thin. One line in the statement about upside inflation risk from energy prices and the bid comes back.
What Powell Can and Can’t Say
This is Jerome Powell’s penultimate meeting as Chair. His term expires May 15. Kevin Warsh, nominated to replace him, is stuck in confirmation limbo after the DOJ served the Fed with grand jury subpoenas over a headquarters renovation project. Powell’s response was pointed: the threat of criminal charges, he said in a video statement, “is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.” Trump, for his part, told reporters on Monday: “What’s a better time to cut interest rates than now? A third-grade student would know that.”
Deutsche Bank’s Jim Reid expects minor statement tweaks, including smoothed language on labour data and a nod to geopolitical risks. BofA’s rates team flagged that Powell’s ability to guide the market depends on whether his comments are seen as representing committee consensus or his own views. Former Vice Chair Roger Ferguson told CNBC he’d prefer the Fed focus on prices over labour. RSM’s Joe Brusuelas captured it best: the Fed “cannot print oil.” In many ways, an energy shock is a central banker’s nightmare, creating tension between a weakening labour market and rising prices simultaneously. The 1970s parallel is the one nobody in the building wants to make explicit.
The Levels
The 2-year yield sat at 3.665 percent going into Wednesday, the 10-year at 4.206 percent. The curve is steepening on expectations that the long end reprices for higher inflation while the short end stays anchored by the hold. If the dot plot moves hawkish and the 2-year backs up toward 3.80 percent, that’s another leg higher for the dollar. DXY resistance is at 100.5, which capped the March rally. Support is at 98.7, tested Monday when oil eased.
WTI was trading 2.7 percent higher in the Tuesday session after Israel said it killed Iran’s top security official and the Islamic Republic struck a natural gas field in the UAE. That’s the environment Powell walks into at 2pm. Whatever he says about the dot plot, the oil chart is writing its own monetary policy in real time.
The Positioning
The market is pricing a hawkish hold with a single cut pencilled for Q4 at best. Whether it gets even that depends on three things: how fast the Iran conflict de-escalates, whether energy pass-through pushes core PCE above 3 percent in the coming months, and who is actually sitting in the Chair when the September meeting arrives. Powell has two meetings left. Warsh may not be confirmed in time. There’s a non-trivial window where the world’s most important central bank is running on autopilot at the exact moment the oil shock hits consumer prices.
If your exposure is dollar-long, the dot plot is your catalyst today. If it confirms one cut or fewer, the DXY has room to retest 100.5 and potentially push through. If by some chance the committee holds at one cut and softens the language, the dollar gives back this week’s gains and EUR/USD runs toward 1.16. The press conference matters more than the statement. Watch what Powell says about oil. Then watch what the curve does after he leaves the podium.
For a complete timeline of how the Iran war reshaped global markets, see our reference page.
