US Dollar Index (DXY) has dropped nearly 3.0% since last week's highs. But in the view of economists at ING, dollar correction should not have legs.

Correction not very sustainable

“The US domestic story remains rather solid, leaving the Fed tightening prospects alive even if markets have recently revised the expected terminal rate to sub 4.50% levels. We see Friday’s payrolls report as a potential trigger for a fresh hawkish re-pricing, and a positive event for the dollar.”

“There is still a long way to go for European assets to regain the market’s favour given the energy crisis and concerning geopolitical developments, so we continue to see any dollar contraction driven by a recovery in European sentiment as likely short-lived.”

“We think the DXY downtrend will soon run out of steam, and some stronger support may already emerge at the 111.00 level.”

“We struggle to see the macroeconomic justification for an extension of the drop below 110.00 at the moment.”