The foreign exchange market remains a reflection of market sentiments regarding Federal Reserve policies. ING economists elaborate on why their medium-term foreign exchange views remain largely unaltered, predominantly focusing on a decline in the value of the Dollar.
A Dollar decline is delayed, not deterred
Selling the Dollar appears to be an expensive proposition, particularly following the recent upswing in US treasury yields. While the Dollar may retain its gains from February in the short term, our outlook, anticipating more significant Federal Reserve rate cuts than what the market anticipates, leads us to maintain a bearish stance on the USD throughout the rest of the year.
Anticipating a Euro-to-US Dollar (EUR/USD) shift to 1.1400 by the end of the year, our projection aligns with the expectation of a European Central Bank easing package of moderate size (75 basis points as opposed to the priced-in 100 basis points). This scenario is anticipated to favor a front-end rate convergence primarily led by the Federal Reserve, contributing to the potential movement in the EUR:USD exchange rate.
