The US dollar is on sure ground as the Federal Reserve gets set to hike. Any “sell-the-fact” downside risk to the dollar appears limited, economists at ING report.
The balance sheet will be allowed to shrink over the coming months
“We think the FOMC will deliver a well-telegraphed 50bp rate hike, with a 75bp move) not completely off the table but unlikely at this stage. We expect quantitative tightening to be announced today. We expect the Fed to start with $50bn being allowed to run off each month before increasing it to $95bn by September. All these measures should be broadly in line with market expectations. That, however, doesn’t mean that there’s no room for surprises on either side.”
“The possibility of a ‘sell-the-fact’ reaction by the dollar is not unlikely. Still, we think that as long as the Fed doesn’t push back against hawkish market expectations, the dollar is likely to face limited downside risks today, or any negative reaction may be short-lived. This is especially true considering the geopolitical risk in Europe tied to the war in Ukraine, lockdowns in China and portfolio outflows from emerging markets.”
Source: FXStreet – FXStreet Insights Team