Economists at BBH expect a 25 bps hike and a very hawkish tone from the Fed.  With risks to U.S. rates weighted to the upside, the dollar is likely to benefit from any bond market repricing of Fed policy. 

DXY is in the process of carving out a near-term bottom

“We believe the dollar is in the process of carving out a near-term bottom. DXY has seen some support emerge just below 102. If it can establish a good base at current levels until the Fed narrative shifts again, the Dollar would be well-positioned to first challenge the January high near 105.631.” 

“USD/JPY  is vulnerable to renewed selling if the Bank of Japan starts removing accommodation this year, as we expect.  However, the pace of tightening would be very modest and so further Yen gains beyond the knee-jerk reaction will be tough.” 

“We believe US yields should move higher if and when a more hawkish narrative is established. In turn, this should help the Dollar recover some ground.”

See – Fed Preview: Forecasts from 16 major banks, dialing down rate hike to 25 bps