Scotia is in line with consensus in forecasting a 75 basis point rise this week, but the FX team notes a trend in USD trading around decisions this year, all of which have tended to be hawkish.
"So far this year, the USD has tended to appreciate modestly ahead of the FOMC decision, with initial gains or losses around the outcome of the meeting tending to even out over the few trading sessions. following ones, leaving the DXY more or less stable the following week," they write.
So far this week, the dollar is weaker ahead of the Fed and they think it will happen more as the consensus dips around Thursday's second quarter GDP print.
"A cautious Fed and a second successive negative US GDP print are likely to significantly weaken the USD, in our view, at least in the short term. There are clear reasons to believe that the upside risks for the EUR, GBP and JPY are constrained at present (central bank repricing risks are a threat to the euro and sterling, gas price supply remains a clear risk weighing on the Euro and BoJ policy parameters appear unlikely to change before next year's positioning could turn into a significant USD correction," they wrote.
In the Dollar Index, they note that the 105.80/85 level is important.
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