We suspect that the dollar correction may have run its course, and several factors should allow for some re-appreciation into year-end. With more limited room for position-squaring effects to weigh on the dollar, our view for this week is that we could see at least some stabilization in the greenback. DXY may struggle to extend its drop below 103/103.50, and a rebound to 105.50/106.00 looks more likely in our view.
We think endorsing the market’s dovish narrative may be premature and risky for the Fed, whose plan should be to let markets do the heavy lifting in tightening - and our rates team is bearish on Treasuries in the near term. A still highly inflationary global environment may struggle to live with sub-3.50% 10-year yields.
In China, many parts of the country – including Beijing – are facing a surge in cases, and the vaccination rates (especially booster doses) among the elderly still look insufficient.
Lastly, with Russia rejecting the cap on oil prices at $60/bbl and threatening output cuts, along with a projected drop in temperatures in many parts of Europe, the energy crisis may return, and we see ample room for gas and oil prices to climb back.
- ING FX Strategy

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