United States Dollar: Fed policy shifts and rate path – ABN AMRO

ABN AMRO economists discuss how a new chapter for the Federal Reserve could influence the US Dollar over coming months. They outline expectations for the Fed’s policy path, including potential rate cuts and balance sheet strategy, and assess how changing US growth and inflation dynamics may affect Dollar performance versus major peers. The report focuses on macro drivers rather than short-term market moves.

Fed path and Dollar implications

"We expect the Fed to start cutting rates in September, followed by a gradual easing cycle that will bring the federal funds rate closer to its longer-run neutral level over the next two years."

"As the Fed moves into this new chapter, we think the Dollar is likely to lose some of its recent exceptionalism, especially if US growth converges towards that of other advanced economies."

"If inflation proves stickier than we currently anticipate and the Fed is forced to delay or reduce the extent of rate cuts, the Dollar could remain stronger for longer against both the Euro and other major currencies."

"Our baseline scenario is that a combination of moderating US growth, easing inflation pressures and a gradual Fed easing cycle will lead to a modest depreciation of the Dollar over the next 12 to 18 months."

"Risks to our Dollar outlook are two-sided, as a sharper-than-expected US slowdown or a renewed flare-up in inflation could both lead to materially different Fed policy paths and, consequently, different Dollar trajectories."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)