US Dollar Index: Fed hike expectations support DXY – ING

ING analyst Chris Turner observes that the US Dollar Index (DXY) remains relatively strong despite significant joint FX intervention in USD/JPY and falling oil prices. The markets are still betting on a Federal Reserve (Fed) interest rate hike in September, which continues to support the dollar. Key factors influencing the DXY include upcoming US jobs data and ISM manufacturing reports.

Turner suggests that the DXY may find support near 99.35/40 and potentially rise above 100 this week. While the dollar should be weaker due to joint FX intervention by the US and Japan, lower oil prices and expectations of Washington negotiating with Iran rather than resorting to military action may be helping to keep the dollar relatively strong.

The focus should be on the July ISM manufacturing release, as it could provide further clues about the Fed's decision to hike rates. The only way the Fed might avoid a September hike is if the US economic data is weak enough. US jobs data, including JOLTS job openings, ADP, and the non-farm payrolls report, are crucial for the Fed's decision-making process.

With consensus on NFP around a gain of +75-80k, the case for a prolonged dollar sell-off has not yet materialized.