Yesterday’s US Consumer Price Index (CPI) read dealt a big blow to the Dollar. Nonetheless, economists at ING think it is premature for a sustained Dollar downtrend.

Too early for a broad Dollar downtrend

“It simply appears too early to call victory in the inflation battle, and more evidence will need to come from the jobs markets – which has remained exceptionally tight. There may not be much interest from the Fed to switch to a more dovish stance without having gathered all possible data before the December meeting.”

“There is still a lack of alternatives to the Dollar at the moment. European currencies are benefitting from lower gas prices, but that has been due to mild weather, and concerns about the energy crisis for this and next winter are unlikely to abate over the next few months. In China, markets are welcoming looser covid rules, but infection numbers are elevated and vaccination rates are low, which means that the path to complete removal of restrictions still looks long. A heavy return to other EMFX currencies also appears premature given the worsening financial conditions and slowing global demand.”

“Risk assets are facing downside risks that go beyond the Fed story: from likely contracting corporate profits to housing market woes and, recently, the turmoil in the crypto market.”

“The Dollar peak might be past us, but a Dollar downtrend may not be there yet. We remain moderately bullish on the Dollar into year-end.”