US Dollar: Data-driven consolidation risks – ING

ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner see the Dollar facing some near-term downside risks after a strong rally. They highlight upcoming US labour data and August PCE as key drivers for October FOMC rate expectations. While a hot jobs report could lift hike pricing, their baseline is for stabilisation and a modestly softer USD.

Dollar rally faces data test

"Data could re-emerge as a primary driver for the Dollar this week. After a good dose of hawkish Fedspeak and Brent staying supported above $100/bbl, markets now need fresh evidence of US economic strength to solidify expectations of a 28 October rate hike. Pricing is currently 16bp, and peaked at 19bp last week."

"The August CPI report on 14 October will be the most important release, but Friday’s jobs figures have the potential to take October rate hike pricing above 20bp. We expect a consensus 90k for September payrolls, but see risks of downward revisions to August’s blowout 162k print. Overall, we expect this week’s labour market data, including ADP and JOLTS, to leave markets guessing about an October hike while keeping the implied probability above 50%."

"Barring another significant upside surprise in payrolls, we don’t see the Dollar keeping up with its recent strong momentum. While it might be too early for a break lower in oil prices, news of the US and Iran working on a deal regarding the Strait of Hormuz could prevent another jump higher. That can ultimately stabilise bonds and risk sentiment."

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