It is a really busy week for central bankers. In the opinion of economists at ING, central bankers pressing more firmly on the monetary brakes will only invert yield curves further, provide greater headwinds to risk assets and keep the dollar bid near the highs.

Tighter monetary conditions favour the dollar

“There seems no reason for the Fed to soften the hawkishness shown at the recent Jackson Hole symposium and a 75 bps 'hawkish hike' should keep the dollar near its highs of the year.”

“Tighter monetary policy around the world will increase the headwinds for risk assets – after all, central bankers are deliberately trying to slow aggregate demand. This should again play into the hands of the anti-cyclical dollar and one which now pays over 3% p.a. on a one-month deposit.”

“Expect a quiet, pre-FOMC session today, where softer housing starts or building permits August data look unlikely to impact market pricing of the Fed tightening cycle – currently pencilling in a peak near 4.50% next spring.” 

“DXY should stay bid in a 109.50/110.00 range.”