Dovish Repricing Could Send US Dollar Index Downward

The US Dollar (USD) is showing signs of recovery against its peers after a sharp decline on Friday, but market analysts are skeptical about its sustainability. At press time, the US Dollar Index (DXY), which measures the Greenback's value against six major currencies, trades marginally higher to near 99.70.

However, strategists at ING reiterate their long-held call for no further Federal Reserve (Fed) interest rate hikes this year, citing weak United States (US) Nonfarm Payrolls (NFP) data for July as a key factor in their dovish Fed stance.

The NFP report showed a -20k payroll print and more than 100k of downward revisions, leaving average payroll growth at just 20k over the past three months. This has led ING to strengthen its bearish bias on the dollar.

Despite Friday's repricing, 11bp are still priced in for September, 28bp for December, and 40bp for April, suggesting there is ample room for dovish repricing to harm the dollar if the Fed follows through with its expected policy.