USD: Despite the tax reform noise this week, nothing’s really changed - ING

After a week of tax noise, the focus for the USD shifts back to data and the Fed, suggests Viraj Patel, Research Analyst at ING.

Key Quotes

“Core PCE inflation – the Fed's preferred price pressure gauge – will be the key release to watch out for; markets are looking for a small uptick in underlying US inflation dynamics to 1.5%, though any miss would question the current 65-70% market-implied probability of a Dec Fed rate hike. While we see this as a bit of a headwind – for the broader $ impact, we encourage investors to look beyond Dec; here we point to the downgrade of the Fed's long-run dot last week and greater uncertainty over pace and extent of future tightening. The idea that we may well be entering the latter stages of the current Fed tightening cycle – and that further rate hikes will be shallower and more limited in scope – means that chasing USD strength on any Fed tightening hopes is unlikely to be a profitable medium-term strategic play. DXY correction could extend to 94.00 – but likely to run into sellers here.”