HSBC Forecasts Stable Dollar Amid Fed Rate Pause

The Fed's decision to pause rate hikes is curbing the anticipated tidal wave in foreign‑exchange markets.

US Monetary Policy and Dollar Trajectory

If the Fed keeps its policy rate at 5.25%, the dollar's short‑term upside beyond 3% largely evaporates. Market participants expect a softening of long‑run inflation expectations to narrow real‑rate differentials, steering the greenback into a cautious path.

HSBC Modeling Outputs and Market Sentiment

■USD/EUR likely to stay below the 1.10 mark with a 70% probability

■USD/JPY projected to dip under 145 with a 55% chance

■Fed Balance Sheet pressure easing from $8 trillion of assets

■10‑year US Treasury yields stabilising around 3.2%

Global Market Reactions and Risk Vectors

A muted dollar supports capital inflows into emerging markets and may trigger a modest pull‑back in commodity prices. Nevertheless, heightened geopolitical tensions or an unexpected inflation surprise could quickly overturn this equilibrium.

Kerem Tufan, Director of Commercial Credit and Central Bank Policies, notes that "the Fed's rate pause can be seen as a macro‑prudent measure that may ease the credit squeeze faced by SMEs. A stable dollar reduces foreign‑exchange risk for indebted corporates, bolstering repayment capacity. Yet, sudden market shocks could stress banks' liquidity buffers, so vigilance remains essential."