ING FX Daily
The dollar had a strong start to the week despite a decline in oil prices and strong risk sentiment. In our view, part of the move reflected a catch-up to levels seen before Friday's reported Bank of Japan rate check, which had damaged USD momentum across the board. Hawkish Fed commentary was however the clearest driver. Chicago Fed President Austan Goolsbee warned that supply shocks, combined with strong spending and Al-related investment, could keep inflation persistent. He added that the path back to 2% inflation may not be painless. Although he is a non-voter in 2026, Goolsbee sits near the centre of the FOMC spectrum and is therefore viewed as a useful gauge of FOMC consensus. Later in the day, St. Louis Fed President Alberto Musalem reinforced the hawkish message, arguing that front-loaded gradual tightening is preferable and that policy remains accommodative. Musalem is seen as one of the more hawkish members and may be among the four officials who projected two additional hikes this year in the dot plot, although he is also a non-voter. The comments supported front-end USD rates on a day when Brent briefly slipped below $100/bblt pulling other G10 rate expectations lower. F
The dollar had a strong start to the week despite a decline in oil prices and strong risk sentiment. In our view, part of the move reflected a catch-up to levels seen before Friday's reported Bank of Japan rate check, which had damaged USD momentum across the board. Hawkish Fed commentary was however the clearest driver. Chicago Fed President Austan Goolsbee warned that supply shocks, combined with strong spending and Al-related investment, could keep inflation persistent.
He added that the path back to 2% inflation may not be painless. Although he is a non-voter in 2026, Goolsbee sits near the centre of the FOMC spectrum and is therefore viewed as a useful gauge of FOMC consensus. Later in the day, St. Louis Fed President Alberto Musalem reinforced the hawkish message, arguing that front-loaded gradual tightening is preferable and that policy remains accommodative.
Musalem is seen as one of the more hawkish members and may be among the four officials who projected two additional hikes this year in the dot plot, although he is also a non-voter. The comments supported front-end USD rates on a day when Brent briefly slipped below $100/bblt pulling other G10 rate expectations lower. Fedspeak will continue to have the potential to break the oil-USD relationship during periods of falling energy prices, as the Fed is viewed as being more fundamentally focused on inflation while other developed central banks are seen as more sensitive to oil price dynamics. Today, we’ll hear from two dovish voices, John Williams and Philip Jefferson.
Any hawkish comments from them could have a deeper impact. Tom Barkin (neutral, non-voter) will also deliver remarks. Yesterday’s price action has reinforced our view that near-term risks for the dollar remain skewed to the upside. 0 already before the end of the month.
The data calendar remains light in the US, with only weekly ADP jobs figures and the Richmond Fed manufacturing index worth mentioning today. The UN General Assembly has started in New York, with President Trump delivering an address and expected to hold talks with Gulf states today. 150 for the first time since late July. Interestingly, oil prices are showing a small beta, with equities and rate differentials the dominant drivers.
The spread between the two-year SOFR and ESTR has rewidened to 150bp, also to levels last seen in July. European Central Bank officials have so far maintained a notably hawkish tone, keeping an October hike firmly on the table. Even so, investors appear increasingly willing to embrace the opposite narrative, pointing to further near-term downside pressure on EUR/USD. Our baseline, still, is that hawkish expectations are too aggressive on both sides of the Atlantic.
We expect just one additional hike from both the ECB and the Fed this year, followed by no further tightening in 2027. 160 year-end EUR/USD forecast. 1330 lows reached in June.