US Dollar: Warsh boost fades as Fed pricing holds – ING

ING’s Francesco Pesole notes the Dollar has surrendered around half of its post-Jackson Hole gains, even as front-end US rates remain firmly supported. He argues that concerns over long-end yields and potential Treasury intervention are feeding a debasement narrative. ING’s baseline sees solid US data this week, reinforcing expectations for a September Federal Reserve hike and allowing DXY to reclaim the 100.0 level.

Fed repricing and DXY recovery prospects

"The dollar has given back roughly half of the gains sparked by Federal Reserve Chair Kevin Warsh’s hawkish speech on Friday. Importantly, this does not reflect any fading conviction on Fed tightening. The 2-year SOFR rate has held above 4.20%, more than 10bp higher than before the speech."

"That is somewhat concerning for dollar bulls. It suggests markets still view higher long-end yields through the lens of potential Treasury interventionism, feeding the debasement trade, which a hawkish repricing of Fed expectations has still not been able to fully unwind. That speaks to the lasting FX impact of Treasury Secretary Scott Bessent’s buyback move."

"Still, we’d be very cautious about chasing a dollar correction further this week. In our view, markets would need a string of materially disappointing data releases over the coming days to meaningfully reassess September FOMC expectations after Warsh’s hawkish message last week. We do not think that is likely."

"For now, we are not prepared to argue that the relationship between the dollar and the front-end has been structurally impaired. As conviction around a 16 September hike is cemented, the dollar should find decent support at the start of the month. September is also a seasonally strong month for DXY."

"Barring a fresh surprise announcement on Treasury market intervention, the index can reclaim the 100.0 level."