ING's Francesco Pesole notes the US Dollar (USD) is gaining strong short-term momentum as hotter US data reinforce expectations for a Federal Reserve (Fed) hike. With US Dollar Index (DXY) breaking above late April highs and no progress on Gulf tensions, they see risks of further Dollar strength, contingent on incoming headlines from Beijing and developments in Oil and equities.

DXY breaks higher on Fed repricing

"The dollar seems to be gaining some serious short-term momentum. We had speculated yesterday that the Trump-Xi meeting could have yielded some positive headlines (perhaps also on Iran) that would have capped USD and lifted sentiment. It’s been too little so far, and a turn lower in equity futures today alongside another leg higher in oil prices is allowing the dollar to benefit from the latest hawkish data and the resulting repricing higher in Fed hike bets."

"Overall, there is little evidence so far that higher fuel costs are curbing broader consumer spending, supporting a narrative of a resilient US economy rather than an increasingly negative impact on RoW activity from higher energy prices."

"We have suddenly broken above the late April highs in DXY, and it’s still dangerous to call for a peak in the dollar, considering the lack of any progress in the Gulf. Risks are of a move to 100 unless some positive headlines start flowing in."

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