USD Index: Bullish narrative remains in place, but watch for the mid-terms – ING
07.11.2022, 09:58

USD Index: Bullish narrative remains in place, but watch for the mid-terms – ING

Macro factors continue to point to Dollar strength. But there are two key risk events for the USD this week: US Consumer Price Index (CPI) data and mid-term elections, economists at ING report.

Two big risk events this week

“Macro factors continue to favour dollar strength and the corrections are mostly related to position-squeezing events. We, therefore, expect a re-appreciation of the dollar in the near term, although there are two major risk events to watch this week in the US: the CPI report and mid-term elections.”

“Most of the focus will be on the monthly change in core CPI, which we expect to come in at 0.5%, in line with consensus. That would indicate further resilience in underlying price pressures and may prevent markets from completely discarding another 75 bps hike in December, ultimately offering the dollar a floor. Below-consensus readings may force a dovish re-pricing in rate expectations though.”

“When it comes to the US mid-term elections, the bigger downside risk for the dollar is that the Republicans secure control of both the House and the Senate, which would imply a hamstrung administration unable to deliver fiscal support in a downturn. A split Congress (House control going to the Republicans) may be mostly priced in, and the implications for the dollar could be relatively limited.”

“We expect more FX volatility this week, but retain a near-term bullish USD bias and expect DXY to climb back above 113.00 in the coming weeks.”

 

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