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Higher energy prices and Gulf tensions keep the US dollar bid
ING expects the Dollar Index, DXY, to grind higher, citing renewed energy pressure and “live” Fed tightening prospects.
ING analysts Chris Turner, Frantisek Taborsky and Francesco Pesole said higher energy prices and tensions in the Gulf are supporting the US dollar versus low-yielding currencies like the euro, Japanese yen and Swiss franc.
They tied the USD outlook to US energy independence and the risk that renewed activity around the Strait of Hormuz would push US rates higher alongside overseas rates, keeping “Fed tightening prospects” firmly on the table.
ING expects the dollar to remain in demand versus the euro, yen and Swiss franc, with DXY seen trending higher, while noting that the Swiss franc lags in a higher-rate environment.
The analysts also pointed to the next catalyst, with June CPI expected to show a month-on-month decline in headline inflation, but they said core inflation is likely to rise to about 2.8% to 2.9% year-on-year, making it “too early” for markets to fully price out a Fed rate hike this year.