ABN AMRO strategist Georgette Boele notes that recent Dollar strength has been driven mainly by a reassessment of the Federal Reserve outlook, with markets now pricing in rate hikes into 2026.
She argues this repricing may have gone too far, as ABN AMRO still expects Fed rate cuts around year-end
The bank sees Dollar momentum persisting over summer before US-specific risks return to focus. Fed repricing drives extended Dollar strength “The dollar rally has been driven mainly by a reassessment of the Fed outlook. Markets may have gone too far in pricing in Fed rate hikes; we still expect rate cuts.
Extreme positioning in sterling and yen increases the risk of sharp currency moves.” “Third, markets had expected a Fed led by Kevin Warsh to be relatively dovish. After his first meeting and press conference, this view changed sharply. Markets are now pricing in around 38bp of rate hikes until the end of 2026, which has been an important driver of dollar strength.” “However, we think markets may have moved too far.