The US Dollar Index (DXY) stays on the back foot and continues to edge lower despite thin holiday trading. However, economists at ING do not expect DXY to trade sustainably under the 105 level.

USD embedding a good deal of Fed-related negatives now

“The degree of cautiousness manifested by Fed officials after the softer CPI figures means that markets may be reluctant to further revise their peak rate bets lower in the near term. This means that one-way traffic in FX, with the Dollar staying on a downtrend for longer, still appears unlikely.”

“The greenback has now absorbed a good deal of negatives when it comes to the Fed story, and in our view can still benefit from the deteriorating outlook outside of the US (especially in Europe and China) in the coming months.” 

“While we don’t exclude the Dollar contraction to take DXY below 105.00, we struggle to see sub-105 levels holding for very long.”