USD: PCE can halt hawkish repricing – ING

There weren’t see evidence that the dollar rebound was driven by geopolitics, and it appeared more like US Dollar (USD) bears were setting a higher bar to justify the expensive dollar selling. Strong US data yesterday all but confirmed that tendency, sending short-dated USD swap rates and the dollar higher, ING's FX analyst Francesco Pesole notes.

More good news is needed to keep USD going

"The third release of 2Q GDP revised growth higher from 3.3% to 3.8%, with personal consumption looking much healthier at 2.5% (previous revision 1.6%). But what probably mattered even more was the second consecutive drop in initial jobless claims, from 232k to 218k, well below the 227k one-year moving average. The picture there couldn’t be more different from two weeks ago, when claims had spiked to 264k, a print that is looking increasingly like a fluke. Finally, durable goods orders surprisingly rose 2.9% MoM in August, and home sales figures were also better than expected."

"The dollar hadn’t had such a slew of good data in a while, and positioning squeezes likely helped the move. But we think more good news is needed to keep the dollar going, and we see substantial risks of a correction today after a USD rally that looks slightly overdone according to our model. The trigger could be August’s personal income/spending or core PCE, which we expect at 0.2% MoM, in line with expectations. That could be enough to bring the pricing for December Fed easing back into the 40-45bp area (now 39bp)**.** We expect DXY to ease back below 98.0 into next week’s payrolls."