The US Dollar has outperformed other major currencies in recent sessions, with the Dollar Index (DXY) up more than 0.6% over the past three trading days and pushing to two-week highs above 102.00 ahead of next Wednesday’s Federal Open Market Committee (FOMC) decision. Positioning has shifted towards a stronger greenback as markets anticipate a hawkish hold that keeps a quarter-point rate rise in December in play. Support has also come from unresolved Middle East tensions, including attacks around the Strait of Hormuz, reinforcing demand for the currency’s safe-haven qualities.
In Europe, the European Central Bank’s (ECB) October survey showed further net tightening of credit standards and weaker loan demand in Q3, complicating the nearly 75bps of ECB hikes priced by markets over the next 12 months. In the US, attention is on September durable goods orders and the ADP weekly employment change for evidence of economic resilience, while rising petrol prices are feeding into near-term inflation expectations referenced in October’s consumer confidence data. The backdrop leaves the Fed’s policy stance central to near-term FX direction, with quantitative easing typically weighing on the USD and quantitative tightening tending to support it.
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