Dollar Strength Extends as Fed Officials Push Back on Rate-Cut Expectations

Goolsbee and Musalem are both non-voters in 2026, but their positioning gives the remarks weight as gauges of committee sentiment. Goolsbee sits near the center of the FOMC spectrum, while Musalem is seen as one of the more hawkish members and may be among the four officials who projected two additional hikes this year in the dot plot.

The dollar's advance also reflected a partial catch-up to levels seen before Friday's reported Bank of Japan rate check, which had damaged USD momentum across the board. In rate markets, the spread between two-year SOFR and ESTR rewidened to 150 basis points, a level last seen in July.

Goolsbee's inflation warning ran against the pull from energy prices. Brent briefly slipped below $100 a barrel, dragging other G10 rate expectations lower, but the Fed is seen as more focused on inflation while other developed central banks are viewed as more sensitive to oil dynamics. That divergence, ING argues, can break the typical oil-USD relationship during periods of falling energy prices.

Attention now shifts to a dovish-leaning slate of speakers. John Williams and Philip Jefferson are both scheduled to deliver remarks, and ING said any hawkish comments from them could have a deeper impact given their more dovish profiles. Tom Barkin, described as neutral and a non-voter, also speaks. The US data calendar is light, limited to weekly ADP jobs figures and the Richmond Fed manufacturing index.

Across the Atlantic, ECB officials have maintained a notably hawkish tone, keeping an October hike firmly on the table. Yet investors appear increasingly willing to embrace the opposite narrative. ING's 60-day model put EUR/USD short-term fair value below 1.150 for the first time since late July.

ING's baseline remains that hawkish expectations are too aggressive on both sides of the Atlantic, with just one additional hike each from the ECB and the Fed this year followed by no further tightening in 2027. That view underpins a year-end EUR/USD forecast of 1.160. Near term, however, the firm sees risks favoring a retest of the 1.1320-1.1330 lows reached in June, and it said DXY may be headed to 101.0 before the end of the month.