The FX market continues to be an extension of market expectations on Fed policy. Economists at ING explain why their medium-term FX views remain broadly unchanged and centred around a Dollar depreciation.

A Dollar decline is delayed, not deterred

The Dollar is an expensive sell, especially after the recent rise in US treasury yields. In the near term, we could see it hold on to February's gains, but our call for larger Fed rate cuts than market pricing means we still favour a bearish USD profile for the remainder of the year.

We expect to see EUR/USD move to 1.1400 by year-end, as a moderately-sized European Central Bank easing package (75 bps versus 100 bps priced in) should also favour a largely Fed-led EUR:USD front-end rate convergence.