Financial experts from ING Bank discussed the current state of the US dollar, noting that it is going through a phase of bearish consolidation and not a major decline.
The forecast comes after the dollar has fallen sharply by 5% since the start of July. Market expectations have priced in a 100 basis point rate cut by the Fed by the end of the year, with the final rate set at 3.00%.
ING analysts believe that these expectations paved the way for the dollar to stabilize without further decline or significant rise.
The recent move in the dollar price is seen as part of a broader downtrend, evidenced by the participation of traditionally late Asian currencies, including the Korean won.
It is worth noting that the options market is currently showing a preference for Korean won-denominated call options, a trend not seen since 2007. This shift can be attributed to either investors rebalancing their portfolios or Asian issuers engaging in dollar hedging of outstandings.
To see the dollar’s downtrend resume, ING suggests that more negative surprises in U.S. economic activity data will be needed. However, the immediate economic calendar, which highlights second-quarter GDP revisions and weekly initial claims, may not provide such catalysts. Initial claims have been consistently near the 235,000 mark, with widespread job losses yet to materialize.
Fed Chair Jerome Powell’s recent speech suggested some concern about the rapidly deteriorating labor market, hinting at possible increases in jobless claims in the future. Despite this, ING expects the Dollar Index (DXY) to remain relatively stable within its current range. Analysts believe that only a move above the 101.60/65 threshold would signal a shift beyond what is currently seen as a bearish dollar consolidation.
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