Dollar Supported by Oil Momentum and Final Rate Hike Expectations

The US Dollar remains supported due to its oil-driven momentum and the expectation of one final rate hike by the Federal Reserve in December. According to ING strategist Francesco Pesole, despite near-term upside risks for the dollar, the firm maintains a gradually negative longer-term view.

Pesole notes that the Fed's path and oil developments will be key drivers for the USD this week. The recent update of their Fed call now expects one final hike in December due to its proximity to the midterms, although stronger data and further gains in energy prices could encourage markets to add to the 13bp currently priced for next month.

Pesole also highlights that if markets assign at least a two-thirds probability to a hike by decision day, the Fed may feel compelled to act, even without full conviction, to avoid unwanted volatility at the back end of the curve. The scope to keep pricing a more hawkish Fed after the September FOMC remains a key argument for further US dollar gains.