With the Fed's hawkish rate repricing having gone a long way, economists at ING suspect the USD rally may soon run out of steam, even though risk-off may delay a downtrend.

Supported by risk-off mood, but rally looks tired

“This could be the week where the Dollar rally starts losing some steam. The main reason for this is that the recent hawkish rhetoric and strong data have likely been absorbed by now and a further hawkish repricing in Fed rate expectations (currently embedding a 5.40/45% peak rate) is looking increasingly harder.” 

“We think that at this stage, it may be mostly down to external factors – like news from Ukraine/China or a general deterioration in risk sentiment – to push the Dollar even higher.”

“Still, signs of deterioration in the global risk sentiment this morning suggest today might not be the day for the start of a Dollar downtrend, but – equally – we struggle to see DXY extend the recent rally to 105.00 and we could instead witness the start of a decline again towards 102.50-103.00 in the coming days.”