The Dollar gained strength due to recent activities by the European Central Bank, according to FX Strategist Francesco Pesole from ING. This was influenced by the surprise rate cut by the Swiss National Bank and the dovish stance of the Bank of England, showing that European central banks are ahead of the Federal Reserve in terms of rate cuts, which is positive for the Dollar. On the other hand, Norway’s Norges Bank took a more hawkish approach in its guidance.
To close the rate gap between the Fed and other central banks and potentially start a new downtrend for the Dollar, there needs to be further softening in inflation and/or activity data in the US. The upcoming PCE May release on 28 June will be a key data point for market participants to watch, although some activity indicators before then could also impact rate expectations to a lesser extent.
Market movements today will likely be influenced by a comparison of PMIs between Europe and the US. However, it is unlikely that these factors will significantly push the Dollar lower at this point, especially considering the ongoing political risks in the EU. ING suggests that the DXY (Dollar Index) may trade closer to 106.0 than 105.0 in the coming days.
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