US Dollar: Upside risks persist – ING

ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner expect US CPI to print slightly above consensus, reinforcing the Dollar’s support. They see scope for some Dollar re-strengthening as markets reassess October Federal Reserve hike odds, even if pricing may not exceed 50%. Short-term overvaluation and positioning are noted, but US inflation risks keep the Dollar’s floor intact against EUR/USD.

US CPI risks support Dollar

"We expect MoM US CPI to be 0.1pp higher than consensus in both headline (0.7%) and core (0.3%) today. While that shouldn’t be enough for markets to price in 50%+ chances of an October Fed hike, it can reinforce expectations of further tightening down the road and, by extension, the dollar’s floor. EUR/USD may retest recent lows before any recovery."

"The dollar had a soft session yesterday as stretched positioning and short-term overvaluation coincided with a recovery in global bonds. A dovish comment by the Fed’s John Williams added a bit of weight to the dollar, more by supporting risk sentiment than triggering much dovish repricing in the front end."

"Today, all eyes will be on US inflation data for September. The consensus is for a 0.6% month-on-month acceleration in headline CPI and 0.2% MoM in core. Our macro team is expecting slightly hotter figures: 0.7% and 0.3% MoM, respectively."

"For this reason, we expect some dollar re-strengthening today. Markets may marginally increase expectations for an October hike, but for pricing to return above 50% (now 20%) we probably need to see headline close to 1.0% MoM and/or core at 0.4% MoM today."

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