The US Dollar has continued to find support at the start of the week, according to ING’s Francesco Pesole, driven by Euro-specific weakness and rising global bond yields, despite strong equity market gains that have limited further USD appreciation [1]. The ISM services index eased slightly to 54.9 from 55.4, remaining above the consensus estimate of 55.0 and firmly in expansion territory. While business activity and new orders softened, stronger employment figures, increased order backlogs, and a new high in prices paid helped offset the decline [1].
ING’s macro team interprets the ISM services data as slightly hawkish, particularly regarding jobs and prices, but not enough to shift market expectations for the Federal Reserve’s next move. Markets are expected to remain comfortable with the prospect of an October hold, provided the September core CPI, due on 14 October, aligns with the consensus of 0.2% month-on-month [1]. However, ING maintains that a December rate hike remains their base case, with DXY risks skewed to the upside [1].
Pesole notes that developments in the French bond market could have a greater impact on the DXY this week than domestic US factors. The Fed narrative is not expected to change significantly in the coming days due to a light economic calendar, and tomorrow’s FOMC minutes are anticipated to have a relatively contained impact given recent softer US data [1].
CONCLUSION
The US Dollar remains supported by higher global yields and expectations of a December Fed hike, according to ING. While recent data is slightly hawkish, it is not enough to alter the prevailing view of an October hold. Market attention may shift to external factors, such as the French bond market, in the near term.