US Dollar: Strength persists on higher yields – ING

ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note the US Dollar remains strong despite softer US data, as rising long-dated US yields weigh on global risk sentiment and support the currency. They highlight front-end rate sensitivity to upcoming PCE and ADP releases, and argue that the current bond slump still argues against any material Dollar correction in the near term.

Dollar holds firm despite soft data

"Expect more front-end action today with the release of September ADP payrolls and August personal spending and PCE inflation. Core PCE is expected to rise from 0.2% to 0.3% MoM, in line with our forecast. While this is the Fed's preferred inflation measure, markets are likely to place greater weight on the September CPI release in a couple of weeks."

"Even so, a 0.4% MoM core PCE print could lift the October hike pricing again close to 20bp if supported by jobs figures too."

"Some stabilisation in risk sentiment could take some shine off the dollar rally, but today's data will have a big say. With room for markets to reprice a higher probability of an October Fed hike, it may be premature to call the top in this dollar move."

"Pricing for an October Fed hike dropped to just below 50% after soft US consumer sentiment and JOLTS yesterday."

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