US Dollar: Yield Curve Support Underpins Firm Tone – ING

The Dollar remains close to its highs for the year, supported by another hot US inflation reading and hawkish remarks from Fed member Chris Waller, ING’s Chris Turner observes. In ING’s view, bearish flattening of the yield curve generally favours the Dollar against procyclical currencies.

Can the Fed’s hawkish stance sustain broad dollar strength?

"The Fed's Chris Waller tossed a hawkish grenade into money markets early yesterday with his threat to vote for a 50bp rate hike at the 9 December FOMC meeting. He conditioned this on the October CPI data coming in hot for the third month in a row, which it subsequently did."

"What does this mean for FX? Bearish flattening of the US yield curve as the Fed takes rates into restrictive territory is normally good for the dollar against activity currencies."

"Given what could be an accelerating US labour market, core inflation well above target and a Fed ready to pull the trigger again, we expect the dollar to stay strong and explore the top end of trading ranges over the coming weeks."

"But Friday's October PPI data could deliver the latest instalment of hot price data and keep the dollar bid."

"DXY should remain near recent highs and could be retesting big resistance at 102.85/103.00 sooner rather than later."

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