USD: Dollar to hold gains through the week – ING

The Dollar Index (DXY) is back at its strongest level since early August and one could easily forget that the Fed had started its easing cycle with a surprisingly large 50bp rate cut in September. Driving this USD strength has been the macro divergence story and investors seemingly positioning for Republican success next week, ING’s FX analyst Chris Turner notes.  

DXY looks to stay bid

“This week will focus on jobs data, price data and a broad look at activity in the first release of US third-quarter GDP data on Wednesday. On jobs, job opening JOLTS data on Tuesday and the October payrolls report on Friday could come in a little softer than expected – although hurricanes may have played a role here and investors may not overreact to soft numbers.”

“On price data, Thursday's release of the September core PCE price data could show an unwelcome 0.3% MoM reading. And when it comes to broader activity, most expect the US to have posted a very decent 3%+ QoQ annualised GDP on Thursday, again led by strong consumption. Even though we strongly favour the Fed cutting two more times this year, this week's data may not substantially alter the pricing of just 39bp of further Fed easing this year.”

“So far it seems that October's run-up in US Treasury yields has been largely driven by growth and rate expectations, not fiscal concerns. And we would imagine the US Treasury would like to keep a low profile with this announcement ahead of elections next week. While acknowledging that the dollar has come a long way very quickly this month, it is hard to see the dollar – yet – reversing those gains. This means DXY looks to stay bid in the 104-105 range for now.”