USD: Dollar has gone too far – ING

Stock markets cleared the key hurdle of Nvidia's earnings release yesterday. While the S&P500 is still down in November as valuation concerns are seemingly on the rise, yesterday's strong earnings are offering relief to global risk sentiment and helping the high-beta G10 segment stabilise. The recent risk-off move lent the dollar some safe haven support, but US Dollar (USD) crosses remain primarily an extension of Fed expectations. Two factors drove them to the hawkish side yesterday, with pricing for December having now dropped to just 7bp, ING's FX analyst Francesco Pesole notes.

Nvidia earnings ease nerves, but Fed outlook turns hawkish

"First, the BLS announced that the November jobs report – alongside an October payroll estimate (without unemployment) – will be published on 16 December. That is after the 10 December Fed meeting. The second factor is hawkish Fed minutes, which were released yesterday. At the October meeting, several FOMC members were against the decision to cut rates, and many expected a hold in December. This confirms that Powell's hawkish presser was representative of a good chunk of the Committee."

"Our call so far has been that jobs data would justify a December cut, but the change in the data release schedule makes it a much harder call now. The balance is swinging in favour of a hold as the higher bar set by the FOMC for a cut may not be met by today's payrolls, which are, incidentally, outdated (September figures) and lacking unemployment data. Consensus is 54k, and while the risks are probably on the downside for the dollar today given the recent hawkish repricing, we’ll probably need to see a very soft print to convince the FOMC to cut without having seen the October and November releases."

"Looking into year-end, our bearish call on the greenback is intact, although dollar weakness may only fully materialise in the second half of December, after jobs data releases. Before then, the balance of risks is on the downside for the dollar, whose rally has overshot what our short-term valuation model suggests and the stabilisation in equities can lift some support."