FX Daily: Dollar enjoys Fed’s hawkish adjustment
At a Glance
The desk asserts that the US dollar is poised to maintain its recent gains spurred by the anticipated hawkish adjustments from the Fed, with potential for further strengthening should US economic data surprise positively. Per the full note from ING, the Fed's commitment to price stability and its revised Dot Plot projections bolster this outlook. Market pricing currently suggests approximately 44 basis points of tightening by mid-2024, which aligns with a careful adjustment strategy highlighted by Fed members. With no imminent policy events on the calendar, traders should be aware of external economic indicators influencing sentiment.
Key Takeaways
- 01The dollar is likely to sustain recent gains, bolstered by supportive Fed signals.
- 02Current market pricing indicates modest Fed tightening ahead, with 44bps expected by Q2 2024.
- 03External economic data will be key in determining further dollar strength.
- 04Upcoming speeches by Fed members may shed light on future policy direction.
Full Analysis
What the desk is arguing
The desk underscores that the dollar is likely to hold its gains following the Fed's recent hawkish pivot, which draws attention to inflation and economic growth metrics. Per the full note from ING, the April FOMC meeting indicated a significant inclination toward further rate adjustments, yet emphasized that we are not embarking on another aggressive tightening cycle like in 2022.
In the wake of the FOMC's hawkish tone, market participants should closely monitor upcoming US economic releases that could provide positive surprises, potentially enhancing dollar strength. The implication of the Fed's strategy is that with nine of the 18 Fed members supporting at least one hike this year, inflation trends will remain a crucial determinant in the path forward.
Where it sits in our coverage
For the EUR/USD pair, our current consensus target stands at 1.1700, with a range between 1.1200 and 1.2000. Notably, firms such as deutschebank (targeting 1.2000 by Dec-26) and bofa (projecting 1.2200) align closely with the anticipated lifting of the dollar as per the current sentiment driven by Fed policies.
This view reflects a moderate consensus, leaning toward a modest dollar appreciation against the euro. Given that our outlook for the dollar is somewhat aggressive, it puts it at the higher end of the general firm consensus compared to the broader market sentiment.
How other firms see it
Several firms such as hsbc and mufg have forecasts that align with our bullish dollar view, with hsbc firm on a Mar-26 target of 1.3500 for GBP/USD, while mfwg anticipates a slightly higher target for the same tenor. In contrast, firms like citi and nomura suggest lower estimates for GBP/USD, predicting depreciation against the greenback, which contrasts with the bullish sentiment.
Traders should also consider the trajectory of related pairs, particularly EUR/GBP, reflecting broader sentiments toward both currencies and their respective central banks in light of recent policy signals.
Market Implications
Watch for US economic activity and inflation data as upcoming releases could act as catalysts for additional dollar gains. A drive towards the 1.1700 mark for EUR/USD offers both challenges and opportunities depending on data outcomes, making it crucial for traders to position appropriately.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2027 |
|---|---|---|
MUFG | — | 1.2000 |
Citi | — | 1.1200 |
UOB | — | 1.1445 |
From the original
Articles FX Daily: Dollar enjoys Fed’s hawkish adjustment 07:37 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download The dollar is largely holding the gains it made on last night's hawkish turn by the Fed. It could strengthen a little further on any ups
Related speeches
4 itemsFX Daily: Dollar consolidates recent gains
The desk maintains a cautiously optimistic view on the dollar, anticipating that it will continue to find support on dips amid a backdrop of improved risk asset stability, particularly in the tech sector. Per the full note [source], the current environment is seen as conducive for the dollar, especially ahead of key US pricing data and monetary policy discussions. The upcoming CPI and PPI data releases will be critical in determining market sentiment towards the Federal Reserve's trajectory, particularly following last week's strong labor market indicators. Current positioning shows a consensus building around a more hawkish Fed, indicating potential dollar gains amidst potential for sustained risk asset consolidation.
FX Daily: Hawkish Fed repricing propels USD higher
Per the full note [source], ING Economics argues that a hawkish repricing of the Federal Reserve's rate path is propelling the USD higher, driven by stronger-than-expected US economic data and sticky inflation. The desk frames this as a sustained USD rally rather than a short-term correction, citing the market's repricing of rate cuts from 75bp to 50bp. This view aligns with the broader consensus among sell-side firms, though some still see a ceiling on USD strength ahead of the next FOMC meeting. No high-impact calendar events are imminent, keeping the focus on data-dependent moves.