Dollar Upside Risks Soar as Oil Prices Remain a Key Driver

The US Dollar has seen its upside risks increase after the Federal Reserve's hawkish message last Wednesday. According to ING strategist Francesco Pesole, moderating oil prices have slightly cooled down the Dollar's post-FOMC momentum.

Pesole believes that oil prices are still a significant driver for the Dollar, alongside closely watched Fedspeak. He notes that energy markets may be gaining some optimism about plans for the region after a reported meeting between US President Donald Trump and the Gulf States during the UN General Assembly.

However, Pesole does not see these developments as enough to take Brent back below $100/bbl at this stage. The strategist still sees upside risks for the Dollar due to the Federal Reserve's hawkish message giving markets the green light to fully price in a hike in October if data and energy prices suggest so.

With a typical late-month lull in major US data, oil prices are expected to be the main short-term driver for the Dollar. Fedspeak will also be closely watched, although the dot plot seemed clear enough in signaling the Fed is planning to hike again this year.