US Dollar: Correction risk as rates ease – ING

ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note that recent contagion from AI-driven equity selling into defensive stocks has lifted the Dollar, even before strong US jobs data. They argue the Dollar rally looks stretched and say softer front-end US rates and upcoming US CPI should limit upside.

Dollar rally seen overstretched

"We think the dollar rally requires the risk-off mood to persist this week. Otherwise, there is some moderate correction risk, as Friday’s move looked a bit too stretched relative to short-term market drivers. Still, in our view, the macro story should prevent DXY from returning to last week’s lows of 101.1."

"We expect tomorrow’s October US CPI to come in at 0.3% month-on-month for both headline (consensus 0.3%) and core (0.3%). That should help cement expectations for a December Fed hike (19bp priced in), making the swap curve more protected from other equity market shocks."

"Contagion from AI to defensive stocks in the US and worldwide allowed the dollar to rally even before the strong US jobs market report. But unless risk sentiment remains poor this week, lower front-end US rates should favour a weaker dollar, even if inflation tomorrow comes in slightly hotter than expected."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)