HSBC said the dollar could rally if the Federal Reserve cuts interest rates by 25 basis points on Wednesday and signals further gradual easing of policy.

Paul Mackel, a foreign exchange strategist at HSBC, said in a report that it was still too close to call whether the Fed would cut rates by 25 or 50 basis points. "HSBC Economics expects the Fed to begin with a 25bp cut, while also hinting at further easing ahead, but with modest magnitudes," Mackel said.

This scenario, according to Mackel, would put the dollar "on better footing," especially given the excessive pricing in of rate cuts and signs of excessive short dollar positions. (Jin Shi)