USD: Hawkish Fed sends USD spiking – ING
19.12.2024, 08:36

USD: Hawkish Fed sends USD spiking – ING

The Federal Reserve cut rates by 25bp as expected yesterday, but the broader policy message was more hawkish than expected. The new dot plot projections were heavily revised, now only factoring in 50bp of additional easing in 2025, and one FOMC member voted for a hold, ING’s FX analyst Francesco Pesole notes.

USD to strengthen into the new year

“Fed Chair Jerome Powell said that the Fed will be more cautious moving on and that more progress on inflation is needed for further cuts. Remember, the dovish shift by the Fed a few months ago was triggered by concerns about the jobs market. Yesterday, Powell said the risks to the labour market had diminished, effectively removing any sense of urgency when it comes to easing.”

“The bear flattening in the US curve pushed the dollar to new highs. DXY is trading at 108.0 and we think this hawkish re-tuning of the Fed’s communication will lay the foundation for sustained dollar strengthening into the new year. Markets are fully expecting a hold in January and 11bp are priced in for March.”

“If indeed the dot plot works as a benchmark for rate expectations for the next three months, the bar for a data surprise to seriously threaten the dollar’s big rate advantage is set higher.”

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