Forex News

Nordea’s Kristian Nummelin notes that strong US data and higher energy prices have recently supported the Dollar, as payrolls, ISM indices and JOLTS all point to a resilient US economy. However, Nordea expects the US Dollar (USD) to weaken in coming months due to structural factors, even as the Federal Reserve (Fed) is forecast to stay on hold with only a low probability of a summer rate hike.

Resilient data but weaker outlook

"Overall, the US economy continues to show resilience despite higher energy prices, which will push household expenses higher."

"Strong US data have offered some support to the dollar, but we expect the dollar to weaken in the coming months due to structural factors."

"We forecast the Fed to remain on hold, but if the data continue to be strong, we do not rule out a rate hike."

"That said, the probability of a hike during the summer remains low."

"While the Fed is well positioned to stay on hold in the coming meetings, the ECB faces greater urgency."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Nomura’s Andrzej Szczepaniak and team expect the European Central Bank (ECB) to begin a recalibration phase at the 11 June meeting, with a 25bp hike in the depo rate to 2.25%. They see the move as a signalling step to prevent inflation expectations from de-anchoring, while keeping guidance on quantitative tightening unchanged and projecting HICP inflation around target by Q4 2028.

Nomura sees signalling-focused rate hike

"We forecast a 25bp ECB depo rate hike to 2.25% at its 11 June meeting. We believe this rate hike should be interpreted as a signal to consumers and firms that the ECB will not allow inflation expectations to drift higher and de-anchor, and that the ECB will not allow inflation to go unchecked."

"Moreover, we believe the ECB’s view on the upper bound for neutral has likely shifted higher (it was previously 2.25% on the narrow band version), which means the ECB could feasibly justify a couple of rate hikes as a signal that it won’t leave inflation expectations or inflation unchecked without adversely affecting economic growth."

"Hence, we view the June meeting as the beginning of phase “recalibration”."

"We expect the decision to raise rates in June to be unanimous. Numerous ECB members have spoken about the likelihood of a June rate hike, ranging from hawkish members, such as Schnabel and Nagel, to dovish members, such as Stourneras."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)