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A shift in expectations about the timing of the first Fed rate hike has supported the USD and rattled the FX market. Economists at Rabobank expect choppy trading in the coming months, but the USD could prove to be more resilient than the consensus is expecting.

Key quotes

“The US does appear to be better placed than some major economies for the recovery and this suggests that the USD could start to find its feet in the months ahead.”

“The fact that the Fed made better progress than its peers in normalizing interest rate policy in the years following the Global Financial Crisis coupled with the enormity of the proposed Biden stimulus bill is likely to keep alive speculation that the Fed may be among the first to change tack on interest rate policy. This may still be a long way off but, given the market’s need to look ahead, this should provide some support to the medium-term USD outlook.”

“While we continue to see scope for EUR/USD to push to 1.23 as risk appetite recovers and the USD retreats again, we expect a choppy path ahead for EUR/USD which may make it difficult for the currency pair to escape this year’s trading range.”

 

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