ING: The USD
A rare good day for bonds let US stocks rise to new highs and left the safe-haven dollar weaker yesterday. Brent briefly fell below $100/bbl before recovering after reports that Iran had stepped up strikes on tankers in the Strait of Hormuz. Stubbornly high oil prices continue to reflect concerns about further disruptions, even as actual oil flows have improved. With few signs of an imminent deal, energy prices should remain a drag on any meaningful recovery in bonds and, by extension, on a decline in the dollar. Attention turns back to the Fed today with the release of the September FOMC minutes. Markets are still looking for greater clarity on the data-policy reaction function, particularly which inflation outcomes would justify another hike this year. The minutes should also offer some insight into any dovish dissent. However, with the dot plot showing more members expecting two further hikes this year than no further tightening, the scope for a dovish surprise appears limited. At the same time, data has been softish since the September hike and markets continue to firmly price a December move, setting a relatively high bar for a positive USD reaction. We expect some stabilisati
A rare good day for bonds let US stocks rise to new highs and left the safe-haven dollar weaker yesterday. Brent briefly fell below $100/bbl before recovering after reports that Iran had stepped up strikes on tankers in the Strait of Hormuz. Stubbornly high oil prices continue to reflect concerns about further disruptions, even as actual oil flows have improved. With few signs of an imminent deal, energy prices should remain a drag on any meaningful recovery in bonds and, by extension, on a decline in the dollar.
Attention turns back to the Fed today with the release of the September FOMC minutes. Markets are still looking for greater clarity on the data-policy reaction function, particularly which inflation outcomes would justify another hike this year. The minutes should also offer some insight into any dovish dissent. However, with the dot plot showing more members expecting two further hikes this year than no further tightening, the scope for a dovish surprise appears limited.
At the same time, data has been softish since the September hike and markets continue to firmly price a December move, setting a relatively high bar for a positive USD reaction. 0 area in DXY, but risks remain on the upside.