US Dollar: Fed pricing supports Dollar resilience – ING
ING’s Chris Turner notes that the French debt sell-off triggered a reassessment of global rate expectations, but US short-dated yields only corrected modestly.
ING’s Chris Turner observed that the Eurozone debt sell-off prompted a reassessment of global interest rate expectations, but US short-term yields only experienced a slight adjustment. With robust US labor data and elevated energy prices, ING anticipates the Dollar either maintaining its current gains or extending them further, with the DXY index aiming for the 102.85 level.
The potential dampening of Fed rate hike expectations may have contributed to the modest correction in US interest rates. The Federal Reserve’s December hike now appears more likely, with the probability of an October hike falling to just 28% from 70% a week earlier. Upcoming Friday's release of the September non-farm payroll data will be crucial, with analysts expecting a headline gain of around 85 to 90 thousand jobs, unemployment remaining at 4.1%, and average hourly earnings showing healthy year-on-year growth of 3.1%.
Given the limited growth in the US labor force, a downside surprise in the headline number is unlikely to significantly impact US rates or the Dollar. The Dollar's gains, bolstered by high energy prices and resilient US activity, could hold or even surpass previous levels, particularly against the Euro. The DXY index recently breached its yearly high above 101.80 and is positioned to target the 102.85 area.
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