Dollar Rally Faces Data Test Ahead of Key US Labour Releases
US Dollar traders are bracing for potential near-term downside risks after its recent strong rally. According to ING strategists Francesco Pesole, Frantisek Taborsky, and Chris Turner, upcoming US labour data and August PCE will be key drivers for October FOMC rate expectations. A hot jobs report could lift hike pricing, but their baseline is for stabilisation and a modestly softer USD.
The strategists expect the dollar rally to face a data test this week, with markets needing fresh evidence of US economic strength to solidify expectations of a 28 October rate hike. The current pricing is 16bp, having peaked at 19bp last week.
Friday's jobs figures have the potential to take October rate hike pricing above 20bp, but ING expects a consensus 90k for September payrolls and sees risks of downward revisions to August's blowout 162k print. The August CPI report on 14 October will be the most important release.