According to ING’s Chris Turner, the US Dollar (USD) is experiencing renewed support due to a hawkish narrative from the Federal Reserve (Fed), with markets now pricing in a small amount of additional tightening for 2026 [1]. Turner notes that high oil prices and ongoing tensions in the Gulf region are contributing to the strength of short-dated US rates, further underpinning the USD [1].
Following the previous week's hawkish FOMC meeting and persistently elevated energy prices, market participants have shifted to pricing in 6-7 basis points of Fed tightening for the current year [1]. Turner emphasizes that the market focus has moved beyond simply delaying Fed easing, to considering whether the Fed will respond to the current inflation shock with tighter policy [1].
Key upcoming data releases, including JOLTS data, ADP employment data, and the April Nonfarm Payrolls (NFP) report, are in focus, but Turner suggests that even a significant decline in NFP may not be sufficient to alter expectations for Fed tightening, given recent volatility in jobs data and the possibility of a flat labor force size [1]. Additionally, attention is on the ISM April services data, particularly selling price expectations, as rising market-based inflation expectations could push the Fed further toward prioritizing price stability [1].
Turner also highlights that unless there are clear signs of sustainable peace in the Gulf region, high oil prices are likely to keep short-dated US rates and the dollar supported, potentially causing the US Dollar Index (DXY) to drift back toward the 99.00–99.50 range this week [1].
CONCLUSION
The US Dollar is currently supported by a hawkish Fed outlook, high oil prices, and geopolitical tensions, with markets pricing in additional tightening for 2026. Unless there is a significant shift in global conditions or economic data, the DXY may continue to trend higher in the near term.