Strong Treasury yields and rate increases expected by the Federal Reserve are set to underpin the US dollar. Economists at ING expect USD Index (DXY) to retest 114/115.

Strong dollar drivers intact

“Yesterday’s small correction in the dollar proved very short-lived. This is not surprising, as most drivers of dollar strength have indeed remained intact.” 

“Markets have pushed their peak Fed rate expectations to the 5.0% mark, and UST 2-year yields are inching closer to 4.60%. This rate environment continues to shed doubts about the sustainability of any rally in equities, and chances that the dollar will receive more safe-haven flows are elevated.”

“For the moment, we see no reasons to change our call for a return of DXY to the late-September 114/115 highs over the coming weeks.”