Economists at ING continue to see mostly downside risks for the US Dollar.

Fed’s lack of clarity counts more than the magnitude of cuts

“Markets moved from pricing in a 24% chance of a hike in May and 88 bp of cuts by year-end on Friday to a 47% implied probability of a hike in May and 46 bp of cuts by year-end as of this morning. In a way, this is telling us how it’s the stance of the Fed and its unclear communication (especially given the contrast with the European counterparts) that leaves the Dollar vulnerable in a stable risk environment and not necessarily the magnitude of expected rate cuts.”

“So, is it going to be a straight-line USD depreciation from now on? We don’t think so. The room for corrections is non-negligible, and those can be triggered either by new risk-off waves outside of the US (like the one seen in Europe on Friday) or by attempts from Fed members to re-establish more hawkish rhetoric.”