Dollar Upside Risks Persist Amid Fed Uncertainty
The US dollar experienced a brief downturn due to a sharp move in the USD/JPY exchange rate, but ING strategists are still predicting an upside for the currency. According to Francesco Pesole, Frantisek Taborsky, and Chris Turner, the dollar was negatively impacted by the yen's jump, but only the Australian Dollar (AUD) and Canadian Dollar (CAD) managed to hold onto gains.
The strategists point out that while the US ISM services report is expected to remain steady at 54.1, the Federal Reserve's decision on a September rate hike remains uncertain. Although market conviction has decreased slightly, with odds now at 15bp, Pesole still prefers an upside in the dollar due to front-end rates and higher energy prices.
The main risk for the dollar remains interventionism by the Treasury, which could lead to higher back-end yields and a revamp of the debasement trade.