Dollar Rally at Risk as Real Yields Drive Correction

US Dollar's rally may be short-lived as real yields drive correction risk, according to ING's Chris Turner. The Federal Reserve's (Fed) FOMC press conference left markets confused, leading to a decline in US real yields and the US Dollar Index (DXY).

With key drivers such as United States Gross Domestic Product (US GDP) and core Personal Consumption Expenditures (PCE) Price Index data upcoming, Turner warns that downside surprises could weigh on the Dollar. The DXY may correct towards 100.50 ahead of the September FOMC meeting.

The FOMC press conference was seen as a sign that the Fed may avoid further tightening, with Chair Kevin Warsh celebrating higher real yields and markets sending a more direct message to the Fed. This led to a decline in US real yields, which fell 7bp yesterday, undermining the dollar.