The US Dollar (USD) remains robust as the market assesses the factors contributing to its 2% increase this month, primarily driven by escalating conflict in the Middle East and a surprisingly strong jobs report for September, according to Chris Turner, FX analyst at ING.
The Dollar Index (DXY) may continue to target 102.60, with potential upward movement toward 103.35. Turner highlighted that the risk of an oil shock stemming from Israeli retaliation against Iran poses stagflation concerns for the global economy. This situation has already caused a 20 basis point bear flattening of the US 2-10 year Treasury curve since late September. Such flattening tends to favor the dollar, particularly impacting activity currencies.
Currently, the dollar stands as the strongest currency among the G10, followed by the defensive Swiss franc, with the Australian dollar in third place. While little significant economic data is expected today, the release of the September FOMC minutes later tonight—when the Fed cut rates by 50 basis points—could further influence market sentiment. Although investors have reduced expectations for aggressive Fed easing in 2024 by about 30 basis points over recent weeks, uncertainty remains.
Additionally, a potential core CPI increase of 0.3% month-on-month for September could lend mild support to the dollar. In summary, there are insufficient indicators to suggest a decline in the dollar’s strength in the near term, allowing DXY to press on toward 102.60, with risks reaching as high as 103.35.
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