US Dollar: Strong tone with yield curve support – ING

ING’s Chris Turner notes the Dollar is trading near this year’s highs after another hot US inflation print and hawkish comments from Fed member Chris Waller. ING argues that bearish yield curve flattening typically supports the Dollar versus procyclical currencies.

Fed hawkishness underpins broad dollar strength

"The Fed's Chris Waller tossed a hawkish grenade into money markets early yesterday with his threat to vote for a 50bp rate hike at the 9 December FOMC meeting. He conditioned this on the October CPI data coming in hot for the third month in a row, which it subsequently did."

"What does this mean for FX? Bearish flattening of the US yield curve as the Fed takes rates into restrictive territory is normally good for the dollar against activity currencies."

"Given what could be an accelerating US labour market, core inflation well above target and a Fed ready to pull the trigger again, we expect the dollar to stay strong and explore the top end of trading ranges over the coming weeks."

"But Friday's October PPI data could deliver the latest instalment of hot price data and keep the dollar bid."

"DXY should remain near recent highs and could be retesting big resistance at 102.85/103.00 sooner rather than later."