ING’s Francesco Pesole notes the Dollar’s post-FOMC selloff has accelerated, with DXY briefly dipping below 100.0 and returning to levels seen after Kevin Warsh’s June press conference. He highlights stretched net-long USD positioning versus G9 and large EUR/USD shorts. Pesole warns further USD long-squeezing is possible and remains reluctant to call a bottom in this Dollar selloff.

USD pressured by dovish Fed repricing

"The post-FOMC dollar selloff accelerated yesterday. Markets remained concerned that the Federal Reserve may be reluctant to translate its price stability rhetoric into effective policy tightening. Combined with Fed Chair Kevin Warsh's ambiguity about the reaction function, this continued to weigh on USD, whose summer strength had been largely driven by Fed hike expectations."

"But other factors came into play yesterday. Core PCE, the Fed’s preferred inflation gauge, rose only 0.1% month-on-month in June, while Q2 growth undershot expectations at 1.5% quarter-on-quarter annualised. Adding to the pressure was JPY intervention, which triggered a more than 3% decline in USD/JPY and spilled over into broader USD sentiment."

"The DXY index, where the yen carries a 13.6% weight, briefly dipped below 100.0 and reached its lowest level since 17 June, when Warsh’s first Fed meeting sent the greenback higher. Position-squaring likely amplified the move. Our estimate of aggregate USD net speculative positioning versus G9, based on CFTC data, showed the most stretched net-long USD positioning since January 2025 as of 21 July."

"That suggests there may still be room for further USD long-squeezing, and we remain reluctant to call the bottom in this dollar selloff just yet. Any disappointment in US data should lead to a larger dovish repricing than before, particularly if oil prices come under renewed pressure. Fedspeak will also be crucial."

"If dissenting votes become the new norm, off-meeting remarks from individual FOMC members are likely to receive greater scrutiny as markets assess voting intentions ahead of the next meeting."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)