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Investing.com-- The dollar’s decline looks set to pick up pace through year-end, ING economists warned in recent report, pressured by the Federal Reserve resuming its rate-cutting cycle and resilient risk appetite.
“Investors now welcome a 125-150 basis point Fed easing cycle without obvious signs of an impending US recession,” the economists said. “We think consensus is right to look for a weaker dollar into year-end as the Fed restarts its easing.”
After a soft US jobs report in July, currency markets have taken a glass-half-full view, expecting a benign dollar sell-off supported by a steepening US yield curve and constructive equity markets. ING forecasts EUR/USD pushing up to 1.20 by year-end on seasonal dollar weakness combined with three expected Fed rate cuts.
The outlook offsets worries from tariffs and bond market jitters, suggesting monetary policy remains a force in G10 FX valuations. The Australian dollar and sterling are positioned to sustain recent gains, while the yen faces risks from shifting leadership in Japan’s ruling Liberal Democratic Party and potential changes in Bank of Japan policy.
In emerging markets, China’s CNY/USD has risen amidst low volatility, but tariffs and political tensions continue to weigh on the Indian rupee, Indonesian rupiah, and PHP/USD. Latin American currencies should stay buoyed given their attractive yields, while the Czech koruna’s gains look more sustainable than Hungary’s forint, which primarily benefits from carry demand.
As the Fed is set to begin its rate-cutting cycle, the dollar is likely to remain the doldrums, the economists suggest, favoring a risk-on environment that supports growth and activity-linked currencies even as the US faces complex headwinds.