Dollar Resilience Driven by Hawkish Fed Expectations

The US Dollar has shown resilience in the face of lower oil prices and improved global risk sentiment. According to ING strategist Francesco Pesole, this is due to hawkish Federal Reserve communication that continues to keep the dollar supported.

Pesole notes that strong US labour indicators and limited impact from geopolitics reinforce expectations for an October Fed hike. The Richmond Fed President Thomas Barkin recently reinforced this message, arguing that a single rate hike may not be enough to bring inflation under control.

Barkin also pointed out that resilient labour market conditions should keep consumer spending supported, implying that a dovish shift among the hawks may require clearer signs of labour market softening. High-frequency jobs indicators have remained strong, with initial jobless claims back below 200k and ADP reporting a bump in weekly hiring to 20k at the start of September.

The consensus is building around a strong September payroll print, around 80-100k. Geopolitics had a limited impact on FX yesterday, but oil floating around the $90-100/bbl range is unlikely to force a dovish rethink in market expectations.