Fed Decision Could Be Mildly Positive for Dollar, but Risks Remain
The U.S. Federal Reserve is widely expected to raise interest rates by 25 basis points on Wednesday, but the accompanying announcement could be “mildly positive” for the dollar, according to ING currency analyst Chris Turner.
Turner said that the Fed may want to push back against the 100 basis points of easing priced in for 2024, and that the DXY dollar index has potential to rise towards 102.00. However, he also warned that there are risks to the dollar, including the ongoing war in Ukraine and rising inflation.
“The Fed is likely to keep the door open to further rate hikes in the coming months, but the accompanying statement may be more hawkish than expected,” Turner said. “This could provide some support for the dollar, but the risks to the greenback remain elevated.”
The DXY dollar index fell 0.1% to 101.203 on Tuesday, having hit a two-week high of 101.6480 on Monday.
Other analysts are also optimistic about the dollar’s prospects in the near term.
“The dollar is likely to remain supported by expectations of further rate hikes from the Fed,” said Kit Juckes, a strategist at Societe Generale. “The war in Ukraine is also likely to keep the dollar in demand as a safe haven.”
However, some analysts warned that the dollar could come under pressure if the Fed’s tightening cycle proves to be too aggressive.