Dollar Defies Oil Price Decline on Hawkish Fed Expectations
The US Dollar has shown resilience in the face of lower oil prices and improved global risk sentiment, according to ING strategist Francesco Pesole. Despite Brent crude falling below $100/bbl, the dollar's strength can be attributed to hawkish Federal Reserve communication.
Pesole notes that strong US labour indicators, including initial jobless claims back below 200k and ADP reporting a bump in weekly hiring to 20k at the start of September, are reinforcing expectations for an October Fed hike. Richmond Fed President Thomas Barkin recently stated that a single rate hike may not be enough to bring inflation under control.
Barkin also emphasized that resilient labour market conditions should keep consumer spending supported, implying that a dovish shift among hawks may require clearer signs of labour market softening. Geopolitics had a limited impact on FX yesterday, with President Trump's UN speech generating few clear market signals.
ING retains the view that the dollar faces upside risks over the next couple of weeks, when a revamp of data releases can prompt markets to add bets on an October hike. In this context, DXY reaching 101.0 remains a very achievable near-term target for Pesole.