US Dollar Index: Fed hike expectations support DXY – ING

FXStreet Insights Team FXStreet

ING’s Chris Turner notes that despite sizeable joint FX intervention in USD/JPY and lower Oil prices, the US Dollar (USD) is not broadly weaker as markets still price a Federal Reserve (Fed) hike in September. He highlights upcoming US jobs data and ISM manufacturing as key inputs, and sees the US Dollar Index (DXY) finding support near 99.35/40 and potentially breaking back above 100 this week.

DXY holds as markets eye Fed

"In theory, the dollar should be broadly weaker today after the US and Japanese authorities confirmed joint FX intervention and the Japanese probably sold $70-80bn over the last three days. Lower oil prices should also be weighing on the dollar on reports from US President Donald Trump that negotiation, rather than military firepower, is Washington's preferred method of engaging with Iran."

"The fact that the dollar is not broadly weaker probably owes to the unresolved issue of whether the Federal Reserve will hike in September. "

"For today, the focus should be on a reasonably strong July ISM manufacturing release."

"It seems the only way the Fed can avoid hiking in September is if the US data is poor enough. A major input to that decision comes this week in the form of US jobs data, including JOLTS job openings, ADP, and Friday's non-farm payrolls report. On NFP, consensus is around +75-80k and probably not quite weak enough to rule out a Fed hike. In other words, the case for a sustained sell-off in the dollar has yet to be made."

"The DXY dollar index will be bounced around by the USD/JPY intervention story, but with decreasing marginal impact from this news story, we suspect DXY could find support near 99.35/40 and can break back above 100 this week."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD drops to two-week low, further below 0.7000 after RBA's less hawkish rate hike

AUD/USD drifts lower for the second straight day on Tuesday, hitting a fresh two-week low during the Asian session after the Reserve Bank of Australia's (RBA) widely expected 25 bps rate hike. The decision was far from unanimous, with three members preferring to hold rates at 4.60%. This tempers expectations of further tightening, which, along with modest US Dollar strength, weighs on the currency pair.

USD/JPY fails near 159.00 amid weak USD, intervention risks

USD/JPY edges lower during Tuesday’s Asian session, reversing part of the previous day's gains to 158.00 as the US Dollar remains depressed amid hopes for Iran diplomacy and ahead of US midterm elections. Meanwhile, intervention risks support the Japanese Yen, though the uncertainty over the timing of the next BoJ rate hike caps gains. This keeps the pair confined within a familiar range and warrants caution before placing directional bets.

Gold struggles below $3,950 amid Fed hike bets, ahead of US midterm elections

Gold weakens further below $3,950 during the Asian session, reversing part of the previous day's recovery from a one-year low set last week. Data released on Monday showed that US manufacturing sector business activity expanded for the 10th straight month in October. The Institute for Supply Management's Manufacturing PMI came in higher than consensus estimates and rose to 55.5 in October from 54.5 in the previous month. This reaffirms hawkish US Federal Reserve expectations, which along with rebounding US bond yields, prompt fresh selling around the non-yielding yellow metal.

Cardano extends losses as sellers stay in control

Cardano (ADA) extends correction, trading below $0.189 on Tuesday after losing key support zone the previous day. Mixed derivatives data and cautious on-chain metrics continue to weigh on bullish sentiment, while weakening technical indicators suggest further downside risks for ADA.

What a split Congress means for the US Dollar

The United States is going to the polls on Tuesday, and much is at stake. The mid-term elections mean the renovation of roughly one-third of the Senate and all 435 of the House seats. Additionally, special elections in Florida and Ohio will be held to fill the seats vacated by US Secretary of State Marco Rubio and Vice President JD Vance.

The 2% inflation target came from a throwaway remark. It now moves trillions

The Federal Reserve's 2% inflation goal grew out of an off-the-cuff remark by a New Zealand politician in 1988. Bond investors still price long-term US debt as if 2% holds, so a change in how the Fed measures inflation would move markets.