ING Research maintains a bullish bias on the USD over the coming weeks.
"The futures market is fully pricing in 75bp of tightening in the next two meetings, which implies at least one 50bp increase. Indeed, expectations about half-percentage increases have been boosted by recent comments by Chair Jerome Powell and other FOMC members (like James Bullard) and we are moving to price in two back-to-back 50bp hikes in May and June (an option that is around 35% embedded into money market pricing). Another – and even more relevant – question for the dollar is where markets find comfort with their expectations on the Fed’s terminal rate, which are currently around 2.75%, but may soon reach 3.00%," ING notes.
"We think this is an environment that should favour the dollar, net of risk sentiment swings, especially against low-yielders (exposed to higher yields) and European currencies (exposed to lingering uncertainty in Ukraine). USD/JPY continued its rally yesterday in line with yet another sell-off in bonds. After easily breaking above 120, we think a move to 125 in the near term is likely given the combination of upbeat risk sentiment and rising hawkish bets on the Fed," ING adds.