US Dollar: Oil drives Dollar upside risks – ING

ING strategist Francesco Pesole notes that moderating Oil prices have slightly cooled the Dollar’s post-FOMC momentum, but still sees upside risks for the Dollar after the Federal Reserve’s hawkish message. With a typical late-month lull in major US data, ING highlights Oil prices as the main short-term driver for the Dollar, alongside closely watched Fedspeak.

Oil and Fed guidance steer Dollar

"Moderating oil prices have taken the edge off the dollar’s post-FOMC momentum. Energy markets may be gaining some optimism that Tuesday’s reported meeting between US President Donald Trump and the Gulf States during the UN General Assembly could yield some clarity about plans for the region. Media speculation also points to Trump nearing a major decision on whether to escalate military operations or pursue an end to the conflict."

"Even so, we do not see these developments as enough to take Brent back below $100/bbl at this stage."

"We still see upside risks for the dollar as the Federal Reserve’s hawkish message on Wednesday has, in our view, given the green light to markets to fully price in a hike in October if data and energy prices suggest so."

"Looking ahead to the next few days, we note that this is typically a cyclical lull period for top-tier US data releases. Today, industrial production and the leading index for August shouldn’t attract much market attention, and the calendar is rather light next week. That leaves oil prices as the main market driver into month-end."

"Fedspeak will also be watched, although the dot plot seemed clear enough in signalling the Fed is planning to hike again this year. Off-meeting remarks by FOMC members will become more relevant after September’s data releases."