US Dollar: AI relief and hawkish Fed support – ING

ING’s Chris Turner notes that better AI sector news and strong SK Hynix earnings have eased fears of an AI-driven equity correction, allowing focus to shift back to resilient US growth, high inflation and higher energy prices, all supportive for the Dollar. He expects a hawkish FOMC message to keep DXY firm and potentially push it above 103.00.

AI stability refocuses markets on Fed

"In an otherwise bullish dollar environment, one of the key threats in recent weeks has been the AI-driven equity correction, as higher borrowing costs questioned business models – particularly those of high-yield issuers. Those fears are slowly being assuaged as the big beasts in this space continue to deliver."

"A little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response."

"But the main event today is tonight's FOMC meeting (see our preview here). We suspect Chair Warsh will not want to tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July. Focus on restoring monetary stability should remain the dominant message and keep the dollar supported."

"DXY is edging back towards its highs of the year, where a move through 102.50 opens up 103.00."