ING Research maintains a bullish bias on the USD in the near-term.
'The pricing in US money markets of the Fed policy curve continues to move higher and flatter. By that we mean the terminal rate pricing has now pushed up to 3.95% for next spring, while the easing for late 2023 is also being priced out too. Notably, December 2023 Fed Funds futures now price Fed rates at 3.60%. Back in late July during the 'Fed pivot' story, these futures had dropped to 2.70%. In short, we have seen quite a re-pricing over the last month – a re-pricing that may not be over yet. Yesterday Fed hawk Esther George spoke of needing to get Fed Funds above 4% and keeping it above there for 2023,"ING notes.
"Given the experience over the last month and the very hawkish speech of Fed Chair Jerome Powell last Friday, we doubt that even a modestly softer August jobs report tomorrow will be enough to dent this Fed pricing or the dollar," ING adds.