USD: Dollar dodges Beige Book bullet – ING

The previous release of the Beige Book warned that nine of the Fed's 12 districts saw flat or declining activity and was thought to have prompted the 50bp Fed cut in September. Well, last night’s release, prepared for the 7 November FOMC meeting, reported stable activity in nearly all districts, with two districts showing expansion, ING’s Chris Turner notes.  

DXY to stay bid in a 104-105 range now

“Nothing here then to alarm the Fed and US interest rate futures barely budged on the release. The USD OIS curve still only prices 37bp of Fed rate cuts before year-end – suggesting the possibility that the Fed might skip a 25bp rate cut at either the November or December meeting. This is all in stark contrast to other central bankers like in Canada or the eurozone which seem in a rush to get rates to neutral, if not lower.”

“This is all happening in the context of the impending US election. Volatility will probably rise into the 5 November election, and assuming that Donald Trump continues to perform well in the polls, the dollar should stay bid. If volatility does indeed take another leg higher from here and liquidity evaporates, we could see USD/NOK punching through two-year highs around the 11.25 area.”

“In the US we see the S&P PMIs, the weekly initial jobless claims and new home sales data. None of these should move the needle on the Fed story and any jump in initial claims could be dismissed as weather-related. DXY has had a virtually 4.5% uninterrupted rally this month. It is hard to think it can push aggressively ahead from here – but reasons for a strong retracement look scarce. DXY is probably to stay bid in a 104-105 range now.”