US Dollar: Oil-driven support as Fed seen hiking – ING

ING strategist Francesco Pesole notes the Dollar remains supported as ING now expects the Fed to deliver one final rate hike in December. Despite near-term upside risks for the Dollar, ING keeps a gradually negative longer-term view and anticipates lower energy prices in Q4. Oil developments and meetings between President Trump and Gulf and Chinese leaders are seen as key drivers for the USD this week.

Fed path and Oil steer Dollar

"The dollar lost some ground on Friday after a reported Bank of Japan rate check (more in the JPY section below), but in our view it remains on solid footing. We recently updated our Fed call and now expect one final hike this year. December remains more likely than October, partly because of its proximity to the midterms, although stronger data and further gains in energy prices could encourage markets to add to the 13bp currently priced for next month."

"If markets assign at least a two-thirds probability to a hike by decision day, the Fed may feel compelled to act, even without full conviction, to avoid unwanted volatility at the back end of the curve."

"The scope to keep pricing a more hawkish Fed after the September FOMC remains a key argument for further US dollar gains. While we still see near-term upside risks for the greenback, our year-end and longer-term view is unchanged and gradually USD negative. We remain materially more dovish than market pricing on the Fed and continue to use a sharp decline in oil prices in 4Q as our baseline scenario."

"With little on the data calendar, oil should be the key driver for the USD this week. Investors will focus on US President Donald Trump’s meetings with Gulf state representatives, reportedly taking place in New York alongside the UN General Assembly. Crude has softened in recent days, but the market still lacks enough encouraging news to push prices back below $100/bbl."

"Trump is also due to meet Chinese President Xi Jinping in Washington on Thursday. While this shouldn’t be a major market event, positive trade headlines could provide some support to the dollar."

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