As FX markets exhibit a mixed trading pattern, economists at ING delve into the factors influencing the US Dollar‘s outlook, navigating the challenges posed by a low-interest-rate environment and a robust global economy.
The current mildly pro-risk sentiment, traditionally a factor favoring a weaker Dollar, is counterbalanced by the combination of robust US economic growth and the relatively slower decline in interest rates in the US compared to Europe. This dichotomy is contributing to the Dollar maintaining a modestly positive stance.
The analysts at ING express skepticism about the imminent resolution of this complex situation. They acknowledge the tug of war between the pro-risk sentiment and the factors favoring a stronger Dollar, highlighting the delicate balancing act in the currency markets.
Despite the current dynamics, ING anticipates a continuation of the status quo, especially considering the upcoming release of the US Core PCE deflator. Projections suggest a well-behaved 0.2% month-on-month and a 2.0% year-on-year, reinforcing the belief that the Federal Reserve has effectively managed its policy objectives.
Looking ahead, ING holds a cautious view on the upcoming Federal Open Market Committee (FOMC) meeting, predicting a less-than-dovish stance. Additionally, potential market turbulence surrounding the announcement of the US Quarterly Refunding on Monday adds to the uncertainty.
In light of these factors, ING suggests that the US Dollar Index (DXY) is likely to find support around the 103.00 level, potentially edging higher towards the 104.00/104.25 range in the early part of the coming week. The analysts underscore the intricate dance of market forces shaping the Dollar’s trajectory and advise vigilance amid the evolving economic landscape.