Ending the Fed’s QE may weigh on the US dollar – ING

Economists at ING expect the Federal Reserve to announce the early termination of QE asset purchases today. Markets might read this as a sign that the Fed's focus is more on balance sheet management than tightening, ultimately pushing back bets on aggressive hikes and weighing on USD.

DXY to consolidate around the 96.00 level into the end of the week

“We expect the early termination of QE asset purchases to be announced today. This move may fuel speculation that the Fed may want to let the balance sheet reduction do the heavy lifting in the policy normalisation process, which could ultimately cause a dovish re-pricing of tightening expectations.”

“As the Fed-induced dollar strength relies on the market’s conviction around four hikes in 2022, we think that the balance of risks is skewed to the downside for the dollar today. That said, the predominance of geopolitical risk in the current market narrative and its impact on equity markets means that any post-Fed dollar weakness should not be particularly pronounced – appetite for the safe-haven dollar should remain high.”

“DXY may stabilise around the 96.00 level into the end of the week.”

See – Fed Preview: Forecasts from 14 major banks, building a March hike