According to ING’s Chris Turner, the US Dollar Index (DXY) is being supported by higher energy prices and deteriorating headlines from the Gulf region, despite remaining about 1% below its June peak [1]. Turner notes that the recent soft US Consumer Price Index (CPI) and Producer Price Index (PPI) data have lessened the hawkish narrative around the Federal Reserve, leading to only about 40 basis points of Fed easing being priced in over the next nine months [1]. This is in contrast to the 55-60 basis points of tightening anticipated for the eurozone and the UK [1].
Turner highlights that the resilience of the dollar is underpinned by the energy shock, which is keeping energy prices, short-dated yields, and the dollar relatively well bid [1]. He finds it slightly surprising that the dollar is not stronger, attributing this to the softer inflation data from the previous week [1]. Despite this, Turner asserts that investors already holding dollars are unlikely to sell in the current environment [1].
Looking ahead, Turner expects USD/JPY to grind higher, with the possibility of briefly breaking above the 162.75/85 level in the coming sessions, especially as Japanese authorities appear to have refrained from intervention during the Marine Day public holiday [1]. ING forecasts that the DXY will continue to find support near 100.50 and could push back toward the 101.30 area [1].
CONCLUSION
ING analysts see the US Dollar Index as resilient, supported by higher energy prices and ongoing geopolitical tensions in the Gulf. While softer US inflation data has tempered expectations for aggressive Fed action, the dollar is expected to remain well bid, with potential for further gains against the yen and a move toward the 101.30 level.