Risk currencies are not seeing the typical boost one would have expected after the US and China agreed on a one-year trade truce last week. We think there are two factors currently at play keeping the dollar the dominant story, ING's FX analyst Chris Turner notes.

DXY to hang around near 100.00/100.25

"The first is the market reconsidering the extent of the Federal Reserve's easing cycle after last week's press conference from Chair Jerome Powell. Here, the probability of a 25bp December rate cut has dropped to 66% and could fall further depending on this week's US data. The focus now will be on what private sector data tells us. Today sees the ISM manufacturing release for November, which contains the employment component. It's not clear if we will see the JOLTS job opening data tomorrow, but on Wednesday, the monthly ADP jobs release will be a big market mover – and probably the biggest chance of the week for the dollar bear trend to restart."

"Our second factor keeping the dollar bid is the tightness in US money markets. With its quantitative tightening, the Fed has been reducing bank reserves this year, and the US Treasury has also been rebuilding its cash stockpile (The Treasury General Account) from $300bn to $950bn. From an environment of surplus liquidity, it now seems that US money market conditions are tighter – exemplified in Friday's data showing banks took down $50bn in overnight funding from the Fed's Standing Repo Facility. Banks have paid 4.00% for this, when market rates are meant to be in the middle of the Fed's 3.75-4.00% range. "

"Tight money markets normally keep the dollar supported, and we'll be watching to see whether this difficulty in accessing dollar funding extends internationally into the cross-currency basis swap, e.g., banks swapping euros for dollar funding. This would be quite EUR/USD negative if seen, but there are no signs of that yet. Expect DXY to hang around near the top of its three-month range near 100.00/100.25, unless insights from the US jobs market can reprice a December Fed cut back to 100%."