USD: Expensive to be short – ING

The US Dollar Index (USD) has gone a little bid this week – largely down to the weakness in the yen, which has a 14% weight in the DXY. At the same time, the dollar is an expensive short position given its 4.15% per annum one-week interest rate. If no significant US data is forthcoming, there is even less reason to sit with – let alone add to – short dollar positions, ING's FX analyst Chris Turner notes.

DXY should remain range-bound

"Interestingly, data from the IMF late last week undermined suggestions that central banks had been the big sellers of dollars in April and May. COFER data reported that, adjusted for exchange rates, the share of dollars in central bank FX reserves remained broadly flat in 2Q25 at around 57%. Instead, what makes more sense is that it was the private sector selling dollars in the second quarter as they increased their hedge ratios on US investments. We expect these hedge ratios to be increased and the dollar to weaken further as the Fed cuts rates a further 100bp over the next nine months."

"For today, it is not clear whether we will receive the August US trade data, where the deficit is expected to narrow. On the subject of the shutdown, the latest betting probabilities are slightly lowering their expectations (to 22%) of this shutdown being the longest in history – i.e. longer than 35 days. We will, however, hear from Fed speakers. Lining up today are Bostic, Bowman and Miran – all speaking around 1600/1630CET. We doubt they will move the needle on market expectations that the Fed will cut a further two times this year."

"DXY should remain range-bound, but with a slight upside bias given developments in Japan and France."