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ING analyst Francesco Pesole suggests the US Dollar's recent rally may be approaching a peak as risk appetite stabilizes and market expectations for tighter Federal Reserve (Fed) policy ease. The analyst highlights that softer core PCE inflation data, a key Fed-targeted metric, reduces pressure for aggressive rate hikes, while improved risk sentiment limits the Dollar's safe-haven appeal. This combination could lead to a reversal in the Dollar's momentum, particularly against major currencies like the Euro and Yen.
For forex traders, a potential Dollar peak signals a shift in market dynamics. A reversal could trigger cross-currency rallies and pressure Dollar-denominated assets. Investors should monitor Fed officials' comments for hints on policy adjustments and track core PCE data for further inflation clues. The broader market may also react to geopolitical developments or economic surprises that could reignite risk-off sentiment.
Looking ahead, the focus remains on the Fed's balance between inflation control and economic growth. If core PCE remains subdued and labor markets show signs of cooling, the Dollar's bearish bias could intensify. Traders should watch upcoming non-farm payrolls, CPI reports, and central bank meeting minutes for directional cues. A sustained Dollar decline could benefit emerging markets and commodities priced in USD.
