This week’s US Dollar (USD) pullback reflects Fed-driven rate expectations rather than geopolitical shifts, while thinner Thanksgiving liquidity may set the stage for potential USD/JPY intervention, ING's FX analyst Francesco Pesole notes.

Yen outperforms high-beta peers

"As discussed yesterday, we believe this week’s dollar correction has more to do with a convergence towards lower rates following the dovish Fed's repricing, rather than any geopolitically driven rotation away from safe havens. The outperformance of the yen relative to a high-beta European currency like SEK is a clear testament to that."

"US markets are closed for Thanksgiving and liquidity conditions should be considerably thinner. That could be an attractive environment for Japanese authorities to intervene in USD/JPY. However, there may still be a preference to intervene after a USD-negative data event, and the stall in the pair may have removed some sense of urgency."

"The dollar remains somewhat expensive against G10 currencies, but given the size of this week's correction and limited room for further dovish repricing before some more data comes in, we are switching to a neutral bias on USD for this Thanksgiving holiday."