US Dollar Index to find a floor at 98.00 and climb back to 99.00 by the end of the week – ING

The coming days will be a litmus test on whether last week’s risk-on rallies brought market’s sentiment too quickly on the optimistic side of the spectrum. Economists at ING expect the dollar to find some support, while the rally in European currencies may pause.

Growth differentials coming to the rescue?

“Encouraging developments in Ukraine may keep risk assets and pro-cyclical currencies supported, although the rally in European currencies is starting to look a bit tired. After all, a military de-escalation may not be enough to bring energy prices materially lower or dramatically reduce the overall economic impact on Europe’s growth outlook.”

“Growth differentials – and consequent monetary policy expectation differentials – may build a case for a dollar comeback this week, with the greenback yet to fully benefit from Wednesday’s hawkish hike by the Fed.”

“We expect the dollar to find some support against the low-yielders and the bloc of European currencies in the near-term, while other pro-cyclical currencies – like the outperforming AUD and NZD – could remain bid.”

“DXY could find a floor at 98.00 and climb back to the 99.00 mark by the end of the week.”