US Dollar: Back-end yields support USD consolidation – ING
ING strategists Francesco Pesole and Frantisek Taborsky note that rising back-end yields and risk-off sentiment are helping consolidate recent Dollar gains, even if they look stretched versus short-term fundamentals.
ING strategists Francesco Pesole and Frantisek Taborsky have observed that rising back-end yields and risk-off sentiment are contributing to the consolidation of recent dollar gains. Despite the consolidated gains appearing stretched when compared to short-term fundamentals, they point to resilient oil prices, doubt surrounding the US-Iran talks, and the increased Fed hike pricing as factors that may keep the USD rally going.
They also suggest that Brent oil could reach $110/bbl before the end of the month. The global bond sell-off continues to influence foreign exchange, benefiting the dollar from the ripple effects on risk sentiment and leading to a consolidation of recent gains. Although oil prices have experienced a correction following the UN summit's failure to produce optimism about resolving issues in the Gulf, the losses were quickly recovered, indicating skepticism about any significant rebound in bonds at the moment.
Consequently, the analysts remain cautious about concluding this USD rally, foreseeing a potential Brent price of $110/bbl before the month ends, bolstered by the dollar's support from the energy sector. This support is particularly prominent in a climate where the Fed's hawkish remarks allow markets to factor in more rate hikes.
The 2-year SOFR has increased by nearly 20 basis points within the last 48 hours, reflecting this sentiment.
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