Technology-stock turbulence could leave the dollar trailing many other G10 currencies if it persists, ING said, as lower U.S. rate expectations threaten a source of support for the currency.
ING FX strategist Francesco Pesole said the U.S. Dollar Index (DXY) could reach 101.0 over the next several weeks, though he saw limited scope for a further decline. He also continued to view a December Federal Reserve rate increase as likely. Both are ING forecasts.
In an Oct. 19 note, ING said two-year U.S. OIS/SOFR rates had fallen 25 basis points from their level after the Oct. 14 inflation report. The bank attributed most of that move to concerns about artificial intelligence and technology stocks, rather than new economic data.
Pesole said investors may be concerned that falling share prices would weaken the wealth effect that some believe has supported U.S. economic resilience. ING said losses had not spread widely across U.S. and global stock indexes. If technology shares stabilize, the bank said, AI concerns could have less influence on currency markets.
The U.S. Bureau of Labor Statistics said consumer prices rose 0.6% in September from the previous month on a seasonally adjusted basis. The annual increase was 3.7% before seasonal adjustment. The energy index rose 5.2% during the month, and the seasonally adjusted gasoline index increased 9.1%.
U.S. Treasury data show the two-year par yield fell from 4.82% on Oct. 14 to 4.77% on Oct. 19. That yield is a different measure from the OIS/SOFR rates cited by ING.
An earlier OCBC assessment of AI investment’s support for the dollar linked the boom to stronger U.S. activity, equities and Treasury yields, while also raising financing concerns.
The Fed’s next policy meeting is scheduled for Oct. 27-28. The bureau plans to release October consumer price data on Nov. 10 at 8:30 a.m. ET.
