Don’t bet against the buck

Somewhat to our surprise, the week just gone has been dominated by the fallout from US midterms, initially weighing on the dollar before a rebound saw the DXY finish Friday on the front foot. Granted, a strong US jobs report for October helped at the margin, with 165k nonfarm payrolls gains exceeding all economist estimates. But it was the post-election AI fallout that primarily drove markets, sinking equities, and the dollar too before the buck rediscovered its haven traits. Against this backdrop, a series of central bank decisions were overshadowed, including those of the RBNZ, Norges Bank, Riksbank, and the BoE. Still, the past week illustrates a key point underpinning our constructive near-term view on the dollar, namely, that with the US economy broadly outperforming and the outlook uncertain, multiple paths are available to fuel dollar appreciation.

We see little reason to think this should not remain the case in the week coming up. The calendar is lighter, albeit headlined by US CPI. An in-line print should help firm up December rate hike odds, helping the dollar consolidate recent gains. Beyond that, Middle East concerns, energy costs, and continued AI jitters are likely to remain key market themes. Given the price action seen so far this month, and the dollar’s newfound haven-bid, that environment, we think, favours dollar upside again in the week ahead.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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