US Dollar Faces Correction Risk as Rates Decline – ING

Even before strong US jobs figures were released, the Dollar had gained as AI-led equity selling spread to defensive stocks, according to ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner. In their view, the rally appears overextended, with lower short-dated US rates and the forthcoming US CPI release likely to constrain further gains.

Dollar gains look overextended

"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.)