ING analysts signal a potential correction for the US Dollar, noting that the recent rally is overstretched and likely to face pressure from lower front-end rates, despite expectations for a December Fed hike.
ING argues the dollar rally is overstretched after contagion from AI-driven equity selling lifted it, and says lower front-end US rates should favour a weaker dollar unless risk-off mood persists. They still see the macro story preventing DXY from returning to last week's low of 101.1, so only a moderate correction is expected.
ING strategists warn the US Dollar rally appears overstretched following recent AI-driven equity market volatility. While the dollar benefited from defensive positioning and strong jobs data, analysts expect softer front-end US rates to trigger a moderate correction unless risk-off sentiment persists.
ING believes Friday's dollar rally was stretched relative to short-term drivers, and if risk sentiment improves, lower front-end US rates should push the dollar lower, though DXY is not expected to return to last week's low of 101.1.
If the risk-off mood persists this week, the dollar rally could continue, and an October CPI print at or above the expected 0.3% month-on-month for headline and core would support December Fed hike expectations, with 19bp already priced in.