ING’s Francesco Pesole notes that the Dollar remains supported early in the week, helped by Euro-specific weakness and higher global bond yields, even as strong equities cap gains. The ISM services data were slightly hawkish but not enough to shift expectations for an October Federal Reserve hold. ING’s macro team still sees a December hike as the base case, with DXY risks skewed to the upside.

Greenback underpinned by yields and Fed

"The dollar has continued to find support at the start of this week. The euro’s idiosyncratic weakness is still playing a role, and so are global bond yields that keep pushing higher. Strong equity performance likely capped USD gains and allowed some high-beta currencies to outperform, but the domestic backdrop remains constructive for the greenback."

"Yesterday, the ISM services index eased to 54.9 from 55.4 (consensus 55.0), but remained firmly in expansion territory. Business activity and new orders softened, though stronger employment and order backlogs, alongside a fresh high in prices paid, helped offset the decline."

"Overall, slightly hawkish news if anything (especially on jobs and prices), but not enough to materially alter the Fed narrative. Markets are likely to remain comfortable with an October hold provided September core CPI (released on 14 October) prints at 0.2% MoM, which is where consensus is converging. But a hike in December remains the base case, also for our macro team."

"For DXY, developments in the French bond market may matter more than domestic US factors this week. Risks remain skewed to the upside, although the Fed story may not change materially over the next few days given the light calendar. Tomorrow’s FOMC minutes may have a relatively contained impact given the soft-ish US data of the past couple of weeks."

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