The US Dollar is currently in a phase of consolidation, with its direction unclear for March, according to economists at ING. While the Dollar may struggle to find firm footing soon, they anticipate that the downward pressure on the USD will increase significantly starting from the second quarter.
Despite signs of robust US inflation and economic activity, investors have already factored in expectations for three 25-basis point cuts in interest rates by December. This level of anticipation reflects a certain comfort among investors, as there isn’t enough compelling data to justify a more dovish stance. The Dollar remains relatively steady, with EUR/USD hovering around 1.0800, which seems reasonable given the current market conditions.
US economic data will remain a focal point for market movements. While some softening may be expected in the February data, particularly in indicators like payrolls, recent developments have raised the threshold for aggressive easing bets. Despite a recent tendency towards more dovish expectations, the reality check provided by the bond market in February suggests that investors may now require more substantial evidence of economic softness before betting heavily on further rate cuts.
In line with their outlook, ING maintains that the second quarter will likely see a notable softening in US economic data, paving the way for a decline in the Dollar. They anticipate this decline will gain momentum as we move into the summer months.