US Dollar: Upside risks find support in hawkish bias – ING

The Dollar’s rally has taken DXY back to April 2025 levels, with ING strategists led by Francesco Pesole attributing the advance to hawkish Federal Reserve rhetoric and stronger US inflation. In their assessment, interest rates remain the driver, as real front-end rate differentials sustain the Dollar’s momentum. Looking ahead to the coming days, the team sees continued upside risks and identifies PPI as a possible trigger for a further USD advance.

Can rate differentials sustain Dollar strength?

"The combination of hawkish Fedspeak and a US CPI beat earlier this week continues to pay dividends for the dollar. DXY is now back at Liberation Day (April 2025) levels, with real front-end rate differentials continuing to fuel strong dollar momentum. Importantly, this remains a rates-driven move, with contained excessive USD strength relative to short-term fair value currently built in."

"We continue to see upside risks for the dollar in the coming days. The Fed's Chris Waller has put a 50bp December move on the radar, and that should keep markets biased towards hawkish interpretations of incoming data. December pricing remains at 28bp, leaving scope for further adjustment."

"Today’s home sales data are unlikely to matter, but tomorrow’s PPI will. That may be the catalyst for another USD leg higher."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)