The risk-off environment at the start of the week is prompting a return of safe-haven demand for the dollar, ING's FX analyst Francesco Pesole notes.

Risks are tilted to the downside for the USD

"While valuation concerns ahead of tomorrow’s Nvidia earnings release appear to be a key driver of the equity sell-off, the move has been global – not confined to US markets. That’s what matters most for FX: as long as the sell-off is broad-based, the dollar can benefit from safe-haven flows."

"Also supporting the dollar is a modest hawkish repricing at the very short end of the USD OIS curve. Pricing for a December Fed cut has been trimmed to 11bp from 15-16bp a week ago, bringing the implied probability just below 50%. This shift is, in our view, largely driven by recent Fedspeak, which has set a cautious, hawkish-leaning tone ahead of key data releases."

"The BLS has announced that September’s payrolls will be released on Thursday at 08:30 AM Washington time. That should limit the FX impact of tomorrow’s FOMC minutes and could prove as pivotal for macro as Nvidia’s earnings are for equities. Our base case remains that risks are tilted to the downside for the dollar once the US data cycle kicks in, and we expect a December Fed cut to become the market’s base case again. But for today, the dollar may stay broadly supported unless equities show signs of stabilising."