|

US Dollar: Rally starting to look stretched – ING

ING’s FX Strategist Francesco Pesole notes the Dollar has jumped, with DXY above 101.0, supported by strong US PMIs, higher Oil and soft risk sentiment, but now looks stretched versus fundamentals. He highlights upside risks if US data surprise and the Federal Reserve is repriced for an October hike, while also flagging USD/JPY intervention risks and a potential DXY correction back toward 100–100.5.

Upside risks but correction eyed

"The dollar jumped yesterday, with DXY breaking above 101.0. Very strong US PMIs, higher oil prices and soft risk sentiment have all contributed to the bullish narrative, although the move is starting to look stretched relative to fundamentals."

"We are cautious in calling for a bottom in the dollar just yet because any upside surprise in upcoming US data releases can easily prompt markets to fully price in an October Fed hike and prop up short-term rates even more. But if this risk doesn’t materialise, we expect a correction in DXY in the coming weeks, with a return to the 100-100.5 area."

"USD/JPY remains another source of potential downside risk for the dollar. The rapid rally in the pair may draw Japanese authorities to intervene – remember last week’s reported rate check – and that could easily spill over into a weaker USD across the board."

"Without any intervention, a return to above 160.0 levels looks inevitable after the dovish surprise by the Bank of Japan last week."

"Today, focus will be on the summit between President Trump and Chinese leader Xi Jinping. There is a history of Trump striking a more conciliatory tone in face-to-face events, and Scott Bessent has already announced an extension of the trade truce by two months."

"Fedspeak also remains firmly on investors’ radar, with Williams, Barkin, Hammack and Paulson all due to deliver remarks today. The data calendar is quiet."

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

Author

FXStreet Insights Team

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.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD hangs near three-week low, below 0.6950 as traders await US NFP report

AUD/USD hits a three-week low during the Asian session on Friday as the RBA’s dovish shift and a rout in equity markets weigh on the risk-sensitive Aussie. However, the recent slump in US bond yields to a two-month low keeps US Dollar bulls on the back foot and limits losses for the currency pair as traders look to the US NFP report for a fresh impetus.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold loses the grip; $4,000 comes next on the downside

Gold sets aside two daily advances in a row on Friday, opening the door to a potential test of the key $4,000 mark per troy ounce. The precious metal’s retracement follows a decent improvement in the sentiment surrounding the US Dollar, solid NFP data and higher US Treasury yields across the board.

Democrats win House and Senate in US midterms: Why isn’t all bad news for crypto

The biggest story this week was Tuesday’s US midterm elections, which saw Democrats win control of both the House and the Senate in a clear blue wave. This political shift in the US has triggered sharp price swings across the cryptocurrency market.

Week ahead – Inflation and geopolitics in focus as US political landscape shifts

Post-midterm election euphoria fizzles out as risk aversion prevails. US CPI, PPI and Fedspeak on the radar as Fed hike bets remain supported. Oil retreat pauses on mixed hopes about the ongoing conflicts.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.