Awaiting Fed – ING minutes

The US dollar (USD) remains relatively tender as the market digests the factors that have seen it rise 2% this month. These were largely the intensifying conflict in the Middle East and the surprisingly strong US jobs report in September, notes ING FX analyst Chris Turner.

DXY may continue to press 102.60 with risks to 103.35

“The risk of an oil shock from Israeli retaliation against Iran is clearly stagflationary for the global economy and has already seen the US 2-10 year Treasury curve flatten 20bps since late September. A bearish flattening of the curve is positive for the dollar and normally sees the active currencies most affected. Yes, the dollar is the strongest G10 currency since the end of September, followed by the defensive Swiss franc, but the third strongest currency is the Australian dollar.”

“There is little data of note today, but tonight sees the release of the September FOMC minutes, when the Fed cut by 50 basis points. The market has already fallen about 30 basis points ahead of the Fed’s 2024 easing cycle in recent weeks, but we also doubt investors are in the mood to re-price another aggressive Fed easing cycle.”

“Furthermore, the risk of a 0.3% month-on-month release in core CPI in September could also prove dollar positive. In short, there are not enough factors to call for a lower dollar in the near term and DXY can continue to press 102.60 with risks to 103.35.”