US Dollar: Risk repricing caps upside – DBS

DBS Group Research’s Philip Wee notes that the Dollar failed to benefit from the latest risk-off episode as US Treasury yields and Fed hike expectations fell. He highlights that the DXY Index was flat despite an equity rout, with investors reassessing the need for further tightening. Upcoming US events, including nonfarm payrolls and consumer sentiment, are seen as key tests for Fed repricing and USD downside risks.

Fed repricing weighs on Dollar

"The post-US midterm relief rally gave way to an AI-led risk sell-off. The USD struggled to benefit as US Treasury yields and Fed hike expectations fell."

"Investors sought safety in US Treasuries and reassessed the need for additional tightening amid financial market stress."

"Haven demand favoured the JPY over the USD. The DXY Index was unchanged at 101.6 despite the equity rout, as falling US yields eroded the greenback’s appeal."

"This bull steepening coincided with December Fed hike probability falling to 68.4% from 81.8% in a single session."

"October US nonfarm payrolls are expected to increase to 70k from 29k previously, consistent with the modest rise in the ISM Services Employment sub-index to 51.4 from 50.1."

"Finally, the University of Michigan Consumer Sentiment Index is expected to remain depressed at a preliminary 48 in November, unchanged from October, underscoring the disconnect between resilient economic growth and weak household confidence."

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