Hawkish Fed to keep dollar afloat into the summer – ING

The dollar is consolidating after yesterday's well-flagged 75 bps hike from the Federal Reserve. As the Fed wants policy rates in the 3.00/3.50% region by year-end, economists at ING expect the USD to trade near the highs this summer.

Dollar to remain bid on dips

“Powell said he wants the policy rate at 3.00-3.50% by year-end and the Fed dots tell us that the policy rate could be closer to 4.00% by the end of 2023. With inflation proving sticky this summer, there seems no reason for the Fed to back away from this hawkish messaging over coming months. That should keep the dollar supported on dips.”

“An additional factor favouring some dollar consolidation could be the temporary support to be found by equity markets into the end of June – as buy-side portfolio managers re-balance portfolios into equities.”

“For today, some softer US housing starts could drag the dollar a little lower, but a hawkish Fed should keep it bid on dips.”

“DXY should find support around the 104.50/60 area.”