ING’s Francesco Pesole highlights that limited upside volatility in Oil, despite stalled US-Iran talks, is capping further Dollar gains even as the macro backdrop improves and Fed expectations turn more hawkish. He expects a solid US May jobs report, slightly above consensus, which could help markets move closer to fully pricing a Federal Reserve rate hike this year and support the Dollar in coming days.

Payrolls eyed for fresh Dollar catalyst

"Upside volatility in oil prices has remained surprisingly limited, considering the lack of tangible progress in US-Iran negotiations. That is preventing the dollar from breaking higher despite the strong macro backdrop. Still, we expect another solid US jobs report today, underpinning the firm USD momentum."

"Brent’s inability to trade back to $100/bbl remains a bit baffling. The longer the supply disruption lasts, the more vulnerable the oil market should be and, in theory, face greater upward volatility whenever de-escalation hopes aren’t fulfilled."

"To keep oil prices at these levels, there must therefore be a big deal of optimism about a peace deal baked in. This is preventing the USD from breaking higher in an environment that is otherwise materially stronger than a month ago for the greenback thanks to hawkish Fed repricing."

"Today’s US May jobs report will test rate expectations. We look for payrolls slightly above consensus (100k vs 88k) and unchanged unemployment at 4.3%. Markets are awaiting the catalyst to leap into fully pricing in a rate hike by the Fed this year (now 17bp) – an upside surprise today could be that."

"A near-consensus print would probably only cement recent hawkish moves and create a firmer floor for the dollar whilst awaiting news from the Gulf."

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