ING predicts moderate hawkish surprise by the Fed could lead to a potential recovery of the dollar

Time Stamp: March 22, 2023 7:11 AM
Source Node: 2526399

ING, a leading global bank, has predicted that a moderate hawkish surprise by the Federal Reserve could lead to a potential recovery of the dollar. The prediction comes as the US central bank is set to hold its policy meeting this week, where it is widely expected to signal a shift towards a more hawkish stance.

The Fed has been under pressure to address rising inflation and the potential threat it poses to the US economy. Inflation has been running at its highest level in over a decade, fueled by a combination of supply chain disruptions, pent-up demand, and government stimulus measures.

To combat inflation, the Fed has already signaled that it may start tapering its bond-buying program later this year. However, investors are now looking for more concrete guidance on when the Fed may start raising interest rates.

According to ING, if the Fed signals a faster pace of rate hikes than currently expected, it could lead to a moderate hawkish surprise that could boost the dollar. This is because higher interest rates tend to attract foreign capital, which strengthens the currency.

However, ING also notes that any hawkish surprise would need to be moderate, as a more aggressive shift towards tightening monetary policy could lead to a sell-off in risky assets and hurt the dollar.

Overall, ING expects the Fed to signal a gradual shift towards a more hawkish stance, with tapering likely to start in November and interest rate hikes not expected until 2023. This should provide some support for the dollar, but any gains are likely to be limited by ongoing concerns over the US economic recovery and geopolitical risks.

In conclusion, ING’s prediction of a potential recovery of the dollar following a moderate hawkish surprise by the Fed highlights the importance of the central bank’s upcoming policy meeting. Investors will be closely watching for any signals on the timing of tapering and interest rate hikes, which could have significant implications for global financial markets.