US Dollar: Data-driven consolidation risks – ING

ING strategists Francesco Pesole, Frantisek Taborsky, and Chris Turner observe the Dollar experiencing a period of consolidation following a significant rally. They emphasize upcoming U.S. labor data and August PCE as crucial factors when considering October FOMC rate expectations. While optimistic job news could bolster hike pricing, their forecast leans towards stabilization with a slightly weaker Dollar.

Data is set to resurface as the key driver for the Dollar this week. After a strong display of hawkish Federal Reserve comments and Brent staying supported above $100/bbl, markets now require fresh evidence of U.S. economic strength to reinforce hopes of a 28 October rate hike. Currently, pricing sits at 16 basis points, having peaked at 19 basis points the previous week.

The August CPI report on October 14 will be the most important release, but Friday’s jobs figures have the potential to push October rate hike pricing above 20 basis points. Expectation is a consensus of 90,000 for September payrolls, but there is a risk of downward revisions to the blowout 162,000 print last month. Overall, this week’s labor market data, including ADP and JOLTS, is expected to leave markets uncertain about an October hike while maintaining an implied probability above 50%.

Unless a significant upward surprise occurs in payrolls, the Dollar is unlikely to maintain its recent strong momentum. While it may not be the right time for a break lower in oil prices, news of the U.S. and Iran negotiating a deal regarding the Strait of Hormuz could prevent another jump higher, potentially stabilizing bonds and risk sentiment.