US Dollar: Softer energy supports carry trades – ING

ING's Chris Turner points out that reduced oil prices and recent intervention by US Treasury Secretary Scott Bessent have led to a decrease in long-term US yields by 10-15 basis points, resulting in lower FX and equities volatility. Turner predicts that a peaceful US core PCE reading will maintain the Dollar's stability, with the DXY potentially staying near the 99.00/10 range and trending towards 98.60.

Following the intervention last week, longer-dated yields have dropped by a few basis points. Bessent defended the intervention, claiming his position provides him with asymmetric information, which could involve potential Middle East peace talks. The drop in oil prices, an 8% decline since last week, has also contributed to this outcome.

Lower yields have reduced interest volatility and contributed to lower FX and equity volatility. The Australian dollar has benefited from the upside surprise in July CPI, increasing the likelihood of an Australian Reserve Bank rate hike in November. The next test for the long-end will be the release of US PCE inflation data, the $44bn 7-year note auction, and Fed Chair Kevin Warsh's Jackson Hole speech.

For the Dollar, a benign US core PCE reading should keep it steady today, but the favorable risk environment could cause minor losses, potentially capping the DXY near 99.00/10 and favoring a move back to 98.60.