Bets on a Fed rate hike are on the rise, but UBS is sticking to the opposite prediction: the U.S. central bank will hold rates steady. Kevin Warsh, an influential figure at the Fed, has just publicly downplayed the risk of inflation in a widely noted statement. This is the first time this has happened in months. 💼
🔍 What’s going on?
UBS has released a clear-cut note: the Fed is expected to keep its policy rates unchanged at upcoming meetings, despite some market participants betting on monetary tightening. This outlook runs counter to current bets in the interest rate markets.
Kevin Warsh, a former Fed governor and influential economic advisor, stated that inflationary risks remain under control. This stance contrasts sharply with the alarmist tone adopted by some FOMC members in recent weeks.
💡 Why does this matter?
This divergence between UBS’s forecasts and market expectations creates significant uncertainty for the dollar. The EUR/USD is currently trading at 1.1424, and the USD/JPY is holding steady at 161.3337 at the time of writing—two currency pairs that are highly sensitive to expectations regarding Fed interest rates.
If UBS is correct and the Fed holds rates steady, we could see a sharp unwinding of speculative positions on the dollar. Traders who bet on a rate hike would likely rush to close out their positions, which would give the euro and the pound a boost.
📊 Our Take
We’re clearly siding with UBS on this one. Warsh’s stance is significant.
Recent U.S. macroeconomic data does not warrant an immediate inflation panic. The latest CPI and NFP figures show a gradual slowdown—exactly what the Fed wanted to achieve without derailing growth. The market is likely overestimating the risk of tightening, driven by a few isolated hawkish statements from regional FOMC members who carry less weight in final decisions. In Europe, the ECB is navigating similar waters: Christine Lagarde is also maintaining a cautious tone in the face of decelerating inflation. This parallel reinforces the idea that major central banks are moving in tandem toward stabilization rather than tightening.
The dollar is expected to weaken gradually against the euro in the coming weeks. For French traders: favor long EUR/USD positions with tight stops below 1.1350, and keep a close eye on the minutes of the next FOMC meeting.
✅ Key Takeaway
- UBS expects the Fed to hold rates steady despite market bets on a hike
- Kevin Warsh publicly downplays the risk of U.S. inflation
- EUR/USD at 1.1424 could rise if the Fed confirms the status quo
- Long euro opportunity with stops below 1.1350 for French traders
What do you think? Are you betting on the Fed holding rates steady like UBS, or do you still believe in a surprise rate hike?
🔎 See also
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Source: UBS, statements by Kevin Warsh, Fed
