A widely expected 25 bps hike from the Fed initially caused barely a ripple for the Dollar. However, the USD did soften marginally through Chair Powell’s press conference. Economists at ING analyze Greenback’s outlook.

EUR/USD should drift up to 1.12 and 1.15 by the end of September and December respectively

As elsewhere in the world it looks increasingly like the Dollar trend will be driven more by the data than central bank communication. Indeed, we may not hear much from the Fed before the Jackson Hole Fed symposium on 24-26 August.

In terms of the data, our house call for further signs of US disinflation and slowing activity may deliver a gentle Dollar bear trend into the next FOMC meeting in late September. The problem for Dollar bears like ourselves is that growth prospects overseas do not look particularly compelling – especially in the Eurozone where stagnation is at risk of turning into a contraction. On balance, we think the US disinflation story will dominate, however, and that EUR/USD should drift up to 1.12 and 1.15 by the end of September and December respectively.

Given quite a few unanswered questions it is no surprise that cross market volatility remains quite low and that investors remain enamored with the carry trade. This will keep the JPY on the back foot – unless the Bank of Japan surprises on Friday – and maintain the demand for the market’s favourite EM high yielders such as the MXN and the HUF.