Dollar Resilience Expected to Continue Amid Fed Rate Hike Uncertainty

The US dollar has shown resilience in recent times, thanks to the Federal Reserve's interest rate path. According to ING's Chris Turner, the French debt sell-off led to a reassessment of global rate expectations, but US short-dated yields only corrected modestly.

This correction was partly due to comments from Fed Vice Chair Philip Jefferson and John Williams, who emphasized that the Fed should not rush into back-to-back rate hikes. As a result, pricing for a Fed hike in October has dropped to 28% from 70% just a week ago, with the market settling on a December hike.

The upcoming release of the September non-farm payroll figure will also play a crucial role in shaping the dollar's trajectory. Consensus expects a +85/90k headline gain, an unemployment rate remaining low at 4.1%, and healthy average earnings near 3.1% year-on-year.

Given the strong US labour market and high energy prices, ING believes that the dollar can retain or slightly extend its gains, with a target of 102.85 for the DXY index.