Expert Analysis: U.S. Dollar Undergoing Bearish Consolidation, ING Reports
Financial experts from ING recently discussed the current state of the U.S. dollar, suggesting that it is currently in a phase of bearish consolidation rather than facing a significant decline. This observation follows a sharp 5% drop in the dollar’s value since the beginning of July. Market expectations have already factored in 100 basis points of Federal Reserve rate cuts by the end of the year, with a terminal rate priced at 3.00%.
According to ING analysts, these expectations have set the stage for the dollar’s value to stabilize without experiencing a substantial further decline or rally. The recent price action of the dollar is seen as part of a broader downward trend, with typically lagging Asian currencies, including the Korean won, also participating.
Interestingly, the options market is currently showing a preference for Korean won call options, a trend that has not been seen since 2007. This shift could be attributed to investors rebalancing portfolios or Asian exporters engaging in overdue dollar hedging.
For the dollar’s bear trend to resume, ING suggests that more negative surprises in U.S. activity data would be necessary. However, the immediate economic calendar, highlighting revisions to second-quarter GDP and weekly initial claims, may not provide such catalysts. Initial claims have been consistently near the 235,000 mark, with broad job layoffs not yet materializing.
Despite Federal Reserve Chair Jerome Powell’s recent speech expressing concern over the rapid deterioration of the labor market and potential future increases in jobless claims, ING expects the Dollar Index (DXY) to remain relatively stable within its current range. Analysts believe that only a move above the 101.60/65 threshold would indicate a shift beyond what is currently viewed as bearish consolidation for the dollar.
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