US Dollar: Fed tightening keeps upside risks – BBH

ING analyst Francesco Pesole observed the dollar began the week with a strong performance despite falling oil prices and robust global equities, propelled by aggressive remarks from Federal Reserve officials Austan Goolsbee and Alberto Musalem. He suggests near-term risks for the dollar are predominantly upward, with the DXY potentially reaching 101.0 before month-end, while the US data calendar remains sparse.

A significant factor behind the dollar's surge was hawkish Federal Reserve commentary, particularly the warnings by Chicago Fed President Austan Goolsbee on persistent inflation and the path back to 2% inflation being arduous. St. Louis Fed President Alberto Musalem echoed a hawkish tone, advocating for gradual tightening and maintaining an accommodative stance.

He is considered one of the more hawkish policymakers and could be part of the four officials projected to make further rate hikes in the year, even though he is not voting. The Fed's rhetoric could disrupt the oil-dollar relationship during periods of declining energy prices, as the Fed emphasizes fundamental concerns about inflation over oil price dynamics held by other developed central banks.

The recent price movements have strengthened the view that risks for the dollar in the near term are tilted to the upside, with the DXY potentially hitting 101.0 before the end of the month.