The US Treasury selloff is adding fuel to the US Dollar (USD) rally, ING’s FX analyst Francesco Pesole notes.  

Stronger USD is a result of potential Trump hedges

“Our perception is that the size of the bond and FX moves are now being exacerbated by some deleveraging ahead of the US election. Yesterday, three Fed speakers (Logan, Kashkari and Schmid) sounded quite cautious about future easing, effectively endorsing the recent hawkish repricing in the USD OIS curve.”

“Mary Daly was more dovish, but that did not prevent markets from trimming another 5bp from year-end rate expectations. The Fed Funds futures curve currently embeds 40bp of cuts and the OIS curve 36bp. While that has continued to widen to policy divergence in favour of the dollar, we are not sure markets will be willing to price out much more easing without having first received some further information on the jobs market.”

“In that sense, we may need to wait another week (JOLTS job opening figures on 29 October) for the next key input to the macro story. Until then, our bias for a stronger dollar is more a result of potential Trump hedges rather than further near-term swap rate widening.”