There is quite a popular view out there that with 100bp of Fed cuts priced by the end of this year and a terminal rate already priced at 3.00%, the dollar does not need to fall much further. Equally, however, we do not see the need for the dollar to rally too much either. And for the time being we are treating this week's dollar price action as bearish consolidation after the relatively sharp 5% fall since the start of July, ING’s FX strategist Chris Turner notes.

Dollar’s bearish holding pattern continues

“What gives us some comfort that this is a broad USD decline is the fact that the Asian FX laggards - including the Korean won - are all participating in the move. Even the Korean options market is showing the one-month risk reversal in favour of Korean won call options - something that rarely has been seen since 2007. Whether this represents investors rebalancing underweight Asian portfolios or Asian exporters catching up on some overdue dollar hedging remains to be seen.” 

“As we have discussed recently, we will probably need to get some more downside surprises on US activity data to get the dollar bear trend moving again. That may not be the case where the calendar only shows revisions to second-quarter GDP data and the weekly initial claims. The latter seems resolutely stuck near the 235,000 area as broad job lay-offs are yet to emerge.”