The US Dollar (USD) is staying relatively bid as the market digests the factors that have driven it 2% higher this month. These have largely been the intensifying conflict in the Middle East and September's surprisingly strong US jobs report, ING’s FX analyst Chris Turner notes.
“The risk of an oil shock on the back of Israeli retaliation against Iran is clearly a stagflationary one for the global economy and has already seen the US 2-10 year Treasury curve bear flatten by 20bp since late September. Bearish flattening of the curve is dollar-positive and normally sees the activity currencies hit the most. Yes, the dollar is the strongest G10 currency since late September followed by the defensive Swiss franc, but the third strongest is the Australian dollar.”
“Today, there is little data of note but tonight sees the release of the September FOMC minutes when the Fed cut 50bp. The market has already scaled back around 30bp from the 2024 Fed easing cycle over the last few weeks but equally we doubt investors are in the mood to re-price an aggressive Fed easing cycle just yet.”
“Additionally, the risk of a 0.3% month-on-month September core CPI release could also prove a mild dollar positive. In short, there are not enough factors to call for a lower dollar in the near term and DXY can continue to press 102.60 with risks to 103.35.”
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