ING’s Chris Turner notes that US data, including ADP jobs, ISM services prices and the Fed’s Beige Book, could reinforce expectations of limited Fed easing in 2026. Turner doubts DXY will sustainably break above 100.35 without an improvement in energy markets.
"As to central banks, we have been writing this week about how the inflationary risk of the energy shock is re-pricing the short-end of the curve. That trend briefly reversed yesterday after equity losses intensified. But unless we see another major equity sell-off today, the hawkish re-pricing of the short-end of the curve looks the dominant theme. That is a dollar positive."
"We see a few inputs into this theme today. Assuming the monthly ADP release comes in near +50k, investors will assume that the Fed has been right to assume that downside risks to the labour market have abated. We will then be looking at the prices paid component of the ISM services index. A high reading there can support the dollar."
"And then tonight we'll see the Fed's Beige Book ahead of the 18 March FOMC meeting. Any signs that price pressures remain sticky could see the market further scaling back expectations for two Fed cuts this year. 45bps of easing is currently priced this year."
"DXY traded as high as 99.68 yesterday. We doubt investors will want to chase it through the 100.00/100.35 highs seen over the last eight months. But equally, we will need to see some clear improvement in the energy story before investors are prepared to enter short dollar positions again."
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)