Dollar Reclaims Ground on Solid US Data Expectations

After US Federal Reserve Chair Kevin Warsh's hawkish speech at Jackson Hole, the US Dollar (DXY) saw significant gains. However, those gains have largely faded, with the dollar having given back around half of its post-speech advances.

According to ING's Francesco Pesole, this doesn't reflect a decrease in conviction for Fed tightening. Instead, concerns over long-end yields and potential Treasury intervention are driving a debasement narrative.

The 2-year SOFR rate has held above 4.20%, which is more than 10bp higher than before Warsh's speech. This is somewhat concerning for dollar bulls, as it suggests markets still view higher long-end yields through the lens of potential Treasury interventionism.

Despite this, ING believes that solid US data this week will reinforce expectations for a September Federal Reserve hike, allowing DXY to reclaim the 100.0 level.