Bank quotes test - 5

Fed restraint and cautious ecb keep dollar bias tilted lower

Analysts at OCBC note that the European Central Bank’s June meeting minutes "reinforced the Governing Council’s view that the June rate hike was fully justified based on the information available at the time," while still "maintaining flexibility on future policy moves." OCBC adds that its "base case remains for one final ECB rate hike in September," although it cautions that ECB President Lagarde’s comments in Sintra have increased the possibility that June marked a "one-and-done" move for this cycle.

Against that backdrop, ING argues that the Federal Reserve’s reaction function will be pivotal for the currency outlook. ING suggests that "if the Fed does indeed continue to look through temporarily higher inflation without hiking, short-dated US interest rates will be falling come September." In turn, the bank concludes that "altogether, but largely driven by the Fed view, we're mildly dollar negative into year-end and into 2027," aligning with its broader expectation that lower US rates and reduced hedging costs will weigh on the Dollar over time.