Dollar finds support amid euro weakness and rising yields

The US Dollar is maintaining its strength early this week, supported by euro weakness and rising global bond yields. While strong equity markets have limited the greenback’s gains, the overall environment remains favorable for the Dollar. Francesco Pesole of ING notes that the domestic backdrop continues to underpin the Dollar, despite some high-beta currencies outperforming.

The ISM services index slightly eased to 54.9 from 55.4, remaining in expansion territory. Although business activity and new orders softened, stronger employment, order backlogs, and higher prices paid offset the decline. The data was slightly hawkish, particularly on jobs and prices, but not enough to shift expectations for an October Federal Reserve hold.

Markets are comfortable with an October hold, provided the September core CPI, to be released on October 14, aligns with the consensus of 0.2% month-over-month. However, ING’s macro team still sees a December hike as the base case. For the Dollar Index (DXY), developments in the French bond market may have more impact than domestic US factors this week.

Risks for DXY remain skewed to the upside, though the Fed narrative is unlikely to change significantly in the near term. Tomorrow’s FOMC minutes may have a limited impact given the recent soft US data.