The US Dollar Index is strengthening to over 111 as FOMC week gets underway. The focus for the Fed is on guidance for December. A signal to slow tightening next month could avoid a push above the 114 level, economists at Société Générale report.
“Though expectations for the terminal rate moved up over the past month to 5% next spring, this has not translated into new highs for the dollar. The question then may come down to whether the US labour market, unlike housing, continues to withstand the dual pressure from inflation (profit margins) and the rising cost of borrowing. A weakening in US employment, ISM and payrolls are also due this week, could arguably have a bigger impact on where the dollar but also bond yields are headed in early November.”
“A return to the highs above 114 appears a big ask if the Fed signals tightening may slow in December.”
“Profit taking in USD/G10 since 21 October has been led primarily by the rebound in GBP (2.6%) but gains have been trivial in comparison for other currencies that make up a larger share of the DXY like the euro (+0.6%). In other words, barring a big advance in the single currency, in yen or sterling which to us all look unlikely, losses for the DXY should be contained.”
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