USD: Good dollar demand to emerge should it trade sub-106 – ING

The Dollar Index (DXY) is slightly softer after yesterday's release of the ISM Services index disappointed consensus and made an 18 December Fed rate cut more likely, ING’s FX analyst Chris Turner

Donald Trump to pump more air into the USD in 2025

“A column in the Financial Times was titled: 'A turning point for the dollar is coming' which sounds alarming for dollar bulls such as ourselves. But the majority of the article focused on why the dollar would strengthen first and then only soften in the medium term after the Fed had to slow tariff-induced inflation with rate hikes and then presumably cut rates into a recession too. That sounds like a bear story for the dollar in late 2026 at the earliest and possibly 2027.”

“Our view is that 2025 will be a year in which Donald Trump pumps more air into the dollar bubble. Indeed, some customers ask whether there will be some kind of 1985 Plaza-style accord to weaken the dollar. We see a low likelihood of that, but perhaps only in 2026 or 2027. History books recall that the Plaza Accord only came in four years after Ronald Reagan's expansionary policies.”

“Back to the short term and the US data calendar is light today. Weekly initial jobless claims have been staying very low recently, but tomorrow's NFP jobs data will have a much bigger say in where the dollar goes next. Events in Europe are keeping the DXY trade-weighted dollar relatively bid despite the drop in short-dated US rates. Again we would expect good dollar demand to emerge should it trade sub-106.”