USD: Treading water – ING

The dollar is treading water ahead of tomorrow's US August CPI release. Geopolitical developments are having limited influence on FX markets at the moment, with three notable examples worth mentioning, ING's FX analyst Chris Turner notes.

DXY to remain supported near 98.00

"Israel's targeting of the Hamas leadership in Doha saw a brief spike in energy prices. But unless Gulf countries retaliate, which is very unlikely, we don't see this having a lasting impact on energy markets. We've also had news this morning that Poland has shot down Russian drones in its airspace. EUR/CHF remains offered, but hasn't broken to fresh lows. Lastly, we note that US President Trump is urging the EU to place 100% tariffs on China and India for purchasing Russian crude. That seems unlikely to happen, and the EU is readying its nineteenth package of sanctions targeting Russian shadow fleets and its banks."

"Away from geopolitics, risk assets remain in rude health. Helping US equities have been some stellar results from Oracle, where its data centre business is performing well and supporting the hype in AI investment. And the prospect of the Fed cutting rates by 125-150bp over the next nine months can only support leverage and demand that asset managers remain fully invested to earn their fees. This is a benign, bearish environment for the dollar."

"Today, the focus is on the US August PPI. 0.3% MoM is expected for the core and headline readings. We doubt any upside surprise will sustain a dollar rally for long now that the market has become convinced the Fed will be cutting next Wednesday. Yesterday's big downward revision to the US jobs data cements that view. Expect DXY to remain supported near 98.00, though we have a slight bias that it ticks higher into the end of the week."