Fed Rate Hike Favored by ING: Dollar Rally Expected
ING economists now favor a US Federal Reserve rate hike later this month. The move could lead to a stronger dollar, especially against low-yielding currencies like the euro.
The EUR/USD exchange rate may end the year at around 1.16 from its previous forecast of 1.18. However, ING notes that this is not a repeat of 2022's market conditions and that the Fed will not embark on a significant tightening cycle.
According to ING, the dollar decline predicted earlier has been delayed but not canceled. The cyclical drop in the dollar is now expected to occur next spring when US inflation is expected to drop close to 2% and markets should be swinging back towards a normalization story of the policy rate returning to 3.25%. However, there are potential wildcards that could cause the dollar drop to happen earlier.