Economists at ABN AMRO believe the Federal Reserve is entering a new phase that could have an important impact on the US Dollar over the coming months. Their outlook focuses on how future interest rate decisions, inflation trends, and economic growth could shape the Dollar’s performance against other major currencies.
The bank expects the Federal Reserve to begin cutting interest rates in September, followed by a gradual easing cycle over the next two years. According to their forecast, the Fed will slowly move rates closer to what is considered a long-term neutral level for the economy.
ABN AMRO analysts believe this shift could reduce some of the US Dollar’s recent strength. As US economic growth begins to slow and move closer to the pace of other advanced economies, the Dollar may lose part of the advantage it has enjoyed in recent years.
However, the bank also warns that inflation remains an important risk factor. If inflation stays higher than expected and the Fed is forced to delay rate cuts or keep rates elevated for longer, the US Dollar could continue to remain strong against the Euro and other major currencies.
In their base-case scenario, ABN AMRO expects moderating US growth, easing inflation pressures, and gradual Fed rate cuts to lead to a modest decline in the Dollar over the next 12 to 18 months.
At the same time, analysts stress that risks remain balanced in both directions. A sharper slowdown in the US economy could force the Fed to cut rates more aggressively, while a fresh rise in inflation could push policymakers to keep monetary policy tighter for longer. Either outcome could significantly change the future path of the US Dollar.
