US Dollar: Strength persists on higher yields – ING

ING strategists, Francesco Pesole, Frantisek Taborsky, and Chris Turner, observe that the US Dollar remains robust despite softer US economic data, as increasing long-term US yields dampen global risk sentiment and bolster the currency. They point out the front-end rate sensitivity to forthcoming Personal Consumption Expenditures (PCE) and ADP releases, asserting that the ongoing bond decline still suggests no significant Dollar correction in the near future.

Expect heightened front-end activity today following the release of September ADP payrolls, along with August personal spending and PCE inflation data. The core PCE is forecast to increase from 0.2% to 0.3% month-over-month, aligning with the Fed's preferred inflation indicator. Although this figure meets their expectations, markets are expected to give greater importance to the September CPI release in the coming weeks.

Nonetheless, a 0.4% month-over-month core PCE print could elevate the probability of a 20 basis point October rate hike. Some stabilization in risk sentiment might diminish the dollar rally's momentum, but today's data will likely play a crucial role. With potential market re-pricing of a higher likelihood of an October Fed rate hike, it could be premature to declare the peak of this dollar surge.

Pricing for a potential October Fed hike decreased to just below 50% after subpar US consumer sentiment and JOLTS data from yesterday. (This report was generated using AI assistance and edited by a human editor.) The FXStreet Insights Team is a team of journalists who carefully selects market observations published by recognized experts.

This content comprises insights from commercial sources and additional viewpoints from both internal and external analysts. AUD/USD is near two-month lows at 0.6950 during the Asian session on Wednesday, as underwhelming August Australian underlying CPI data dampens expectations for further Reserve Bank of Australia (RBA) interest rate hikes.

Meanwhile, Chinese Purchasing Managers' Index (PMI) data also fails to stimulate the Australian Dollar, despite a temporary halt in US Dollar gains. USD/JPY remains below 157.00 in the Asian session on Wednesday, as hawkish Bank of Japan (BoJ) expectations and intervention risks support the Japanese Yen, counteracting weak domestic factory output and retail sales data.

A broader US Dollar decline also contributes to the yen's downside. Gold continues its consolidation move near the $4,200 mark in anticipation of the European session, driven by mixed fundamental signals. Lower US bond yields aid the dollar's decline from its two-month peak reached on Tuesday and act as a booster for the commodity.

However, hawkish Federal Reserve expectations limit upward potential as traders await significant US economic data before making new directional bets on the non-yielding bullion. Aave drops below $161 on Wednesday after surging over 10% the previous day, with on-chain data indicating increased profit-taking. Additionally, Aave founder Stani Kulechov is contemplating an AAVE token-burn mechanism under Aavenomics 3.0, which could serve as a potential catalyst for AAVE.

The United States Bureau of Economic Analysis will release Personal Consumption Expenditures Price Index data for August on Wednesday at 12:30 GMT. Market participants closely monitor the PCE Price Index because it is the Federal Reserve's primary measure of inflation and may shape its policy stance.