The Dollar has Limited Downside Risks as the Fed Prepares to Raise – ING

The US dollar is on stable footing as the Federal Reserve (Fed) prepares to increase interest rates. According to ING economists, the dollar's "sell-the-fact" downside risk seems to be limited.

May 04, 2022 - 02:23 PM 246 views

The Dollar has Limited Downside Risks as the Fed Prepares to Raise – ING

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© The Dollar has Limited Downside Risks as the Fed Prepares to Raise – ING

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The US dollar is on stable footing as the Federal Reserve (Fed) prepares to increase interest rates. According to ING economists, the dollar's "sell-the-fact" downside risk seems to be limited.

     Over the next few months, the balance sheet will be expected to decrease.

       “We believe the FOMC will offer a well-publicized price rise of 50 basis points, with a 75 basis point hike begin completely out of the question at this time. We anticipate today's announcement of quantitative tightening. We anticipate the Fed to begin by allowing $50 billion to flow off each month, gradually growing to $95 billion by September. All of these indicators should be consistent with market expectations. That doesn't rule out the possibility of a surprise on any side. "

    The likelihood of a dollar "sell-the-fact" response is not ruled out completely. Still, we believe that the dollar faces minimal downside risks today, as long as the Fed does not defy hawkish market sentiment and that any negative response would be close to the end of its life. This is true in the sense of the geopolitical risk in Europe stemming from the Ukraine conflict, lockdowns in China, Chinese capital controls, and portfolio outflows from emerging markets.

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