Dollar Rally Looks Stretched: Upside Risks Ahead

ING's FX Strategist Francesco Pesole notes that the US Dollar has seen a notable jump, with the DXY index breaking above 101.0.

This surge can be attributed to strong US PMIs, higher oil prices, and soft risk sentiment.

However, Pesole believes that the dollar's rally is starting to look stretched relative to its fundamental drivers.

The strategist highlights upside risks if upcoming US data releases surprise markets, prompting a repricing of an October Fed hike and further propelling short-term rates.

In the absence of such surprises, Pesole expects a correction in DXY towards 100-100.5 levels.