The US Dollar remained reasonably bid on Tuesday as markets digested the US tariff news, while news of a peace deal between Israel and Hezbollah has not affected the market much. Apart from the understandable pressure on the Mexican peso and US car producers with facilities south of the border, there was little impact on the US rates markets. In other words, the inflationary side of potential tariffs hasyet to play out in US asset markets, ING’s FX analyst Chris Turner notes.
That means the market probably retains its pricing of 15bp worth of Fed cuts in December and also keeps US rate differentials versus the Rest of the World at reasonably wide levels.” “We are bullish on the dollar and note that today's US data set, including confirmation of US third-quarter GDP at 2.8% quarter-on-quarterannualized, will be the last in this holiday-shortened week. In its entirety, the environment looks dollar-bullish to us.