USD: Fed terminal rate re-priced higher – ING

💡 DMK Insight

Isabel Schnabel’s comments are shaking up rate expectations, and here’s why that matters: Traders are now caught in a tug-of-war between the ECB’s potential rate hike and the market’s pricing of 90 basis points of Fed easing. This disconnect could lead to volatility across forex pairs, especially EUR/USD and USD/JPY. If the ECB signals a hawkish stance while the Fed leans dovish, we might see a stronger euro against the dollar. Watch for key levels: if EUR/USD breaks above recent resistance, it could trigger further buying. Conversely, if the Fed maintains its easing trajectory, the dollar might weaken, impacting commodities and crypto as well. But here’s the flip side: if the Fed surprises with a more aggressive stance, it could send shockwaves through the market, reversing current trends. Traders should keep an eye on upcoming economic data releases and central bank communications for clues. The next few weeks are crucial, so monitor the 1.10 level in EUR/USD closely for potential breakout or reversal signals.