US Dollar: Rally on resilient US growth prospects or sell off on lower market interest rates? – ING

FX markets continue to trade in mixed fashion. Economists at ING analyze Dollar’s outlook.

Caught between a low rate and a strong US world

On the one hand, the mildly pro-risk sentiment should be a mild Dollar negative. Yet, decent US growth plus rates falling faster in Europe than in the US are keeping the Dollar mildly bid.

We doubt this challenge gets resolved in the short term, even though today’s US Core PCE deflator should again come in at a very well behaved 0.2% month-on-month, 2.0% year-on-year and point to the Fed’s job being done. 

Given our view on a less-than-dovish FOMC meeting next week and potential market noise around Monday’s announcement of the US Quarterly Refunding, we suspect DXY can hold support levels near 103.00 and could nudge up towards the 104.00/104.25 area early next week.