Dollar stays on the front foot amid mounting uncertainty

Another week of upside surprises to US data and hawkish noises from some FOMC members have helped the US dollar build on last week’s rebound. With money markets now shifting towards discounting a potential pause in the Fed’s incipient rate cutting cycle – which seems improbable in our view – we see limited further upside for the greenback from US interest rate expectations in the near term. That said, the potential for another escalation in the Middle East, more disappointment around China’s policy stimulus package, and uncertainty around the US election arguably still tilt the balance of risks over the coming weeks in favour of the dollar.