A US Dollar recovery may be on the cards this week – ING
29.11.2022, 10:00

A US Dollar recovery may be on the cards this week – ING

Markets are keeping an eye on developments in China. Furthermore, Fed Chair Jerome Powell's speech tomorrow and Nonfarm Payrolls on Friday are two key risk events. All in all, stars may be aligning for a Dollar recovery, in the view of economists at ING.

Bracing for a hawkish Powell

“Investors appear to be gravitating towards the risk-negative narrative of possible instability in China, despite the fact that this may prompt China to expedite its exit from Covid restrictions – likely a risk-on development.”

“This week's events, which include tomorrow’s speech by Fed Chair Jerome Powell (where we see a higher likelihood that he will sound hawkish) and US jobs data (which could stay strong), may cause the Fed's communicated and perceived narrative to drift away from dovish pivot expectations.”

“A 2Y10Y UST curve displaying a 75/80 bps inversion is indicating a common perception that the Fed will push forward with tightening into a recession. This should be a Dollar-positive combination.”

“We believe the Dollar can find some further support today as markets favour defensive trades ahead of key events later this week. Prior to Powell's speech, a return to 107.00/107.50 levels in DXY is possible.”

 

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