Dollar Rallies on Fed Hawkishness and Energy Prices
US Dollar gains are being supported by hawkish comments from Federal Reserve member Kevin Warsh and a renewed spike in energy prices. This has led markets to expect a rate hike in September, which is seen as a key factor in the Dollar's strength. ING's Chris Turner notes that the cyclical Fed story can outweigh concerns about Dollar debasement.
Turner highlights risks from long-end US bond dynamics, including fears of Treasury Secretary Scott Bessent intervening to support the market. However, he believes the Fed will hike rates in September due to inflation not falling quickly enough and a reasonably strong economy.
The cyclical Fed story is seen as more important than Dollar bearish debasement concerns, with Turner predicting that the Dollar Index (DXY) could grind higher towards 100.10/20. The yield curve flattening is also expected to see the dollar advance against low-yielding currencies, especially the Swiss franc.