ING’s Francesco Pesole argues the Dollar rally may be nearing its peak as calmer risk sentiment and softer Federal Reserve (Fed) pricing take hold. He notes expectations for solid US spending data but a muted core Personal Consumption Expenditures (PCE) Price Index print, which could limit further hawkish repricing. ING’s economists still see no Fed hikes in 2026, underpinning a bearish Dollar view for second half of the year.

Dollar rally faces softer PCE risk

"The dollar seems to have halted its run on some risk sentiment stabilisation, but it’s still early to rule out another leg higher in the greenback. Any new signs of AI jitters could be the catalyst for more safe-haven-related dollar demand."

"At the same time, our baseline view remains that we are not far from the peak in this dollar rally. This risk correction has shaved around 7bp off the Fed pricing for December, which is now 35bp. It’s a potential sign that the bar for a dovish repricing may not be that high. Our economists still expect no hikes by the Fed this year, which backs our bearish USD call for 2H."

"Today, the US data calendar picks up again. Personal income figures for May are expected to come in at a robust 0.6% on the back of good retail sales data. However, the savings rate may keep dropping closer to all-time lows – a sign of growing stress for some consumers."

"The other main release is the Fed's preferred measure of inflation, the core PCE deflator. Expectations are for 0.3% MoM, but we see risks tilted to a 0.2% print. That wouldn’t be enough to sustainably invert the USD’s momentum, but it could help build some resistance to more aggressive hawkish repricing in the swap curve."

"Fedspeak also remains quite closely watched. Today, Bowman and Williams are due to speak. The former is arguably the most dovish FOMC member after Miran’s departure, and Williams is also a dovish-leaning voice. We could hear some pushback against aggressive expectations as they probably belong to the half of FOMC members who forecasted no hikes this year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)