test 3 - Still incorrect bank quotes after removing prompt section

The banks broadly see the Fed holding rates in October, with a December hike still likely and already priced, but they differ on how much further tightening could follow. MUFG/BTMU and Commerzbank focus on the timing and extent of Fed moves and their impact on the US Dollar, while ING concentrates on positioning, valuation and the character of any Dollar decline.

MUFG/BTMU: October hike odds trimmed, but Dollar still backed by Fed

Analysts at MUFG/BTMU state that they "still expect the Fed to hike rates one more time this year in December" and cannot "completely rule out the probability of another back-to-back hike this month after the stronger US inflation data for September." They note that "recently the US rate market has been scaling back Fed rate hike expectations for this month" and that "there is currently only around 4bps of hikes priced in" after Fed officials, including Chair Kevin Warsh, "refrained from signalling that they are in a rush to raise rates further after tightening policy for the first time last month." According to MUFG/BTMU, this "scaling back of October Fed rate hike expectations has helped to dampen the US dollar’s upward momentum in the near-term although further hikes remain likely."

"MUFG/BTMU: We still expect the Fed to hike rates one more time this year in December and can’t completely rule out the probability of another back-to-back hike this month after the stronger US inflation data for September."

ING: Softer Dollar linked to AI concerns and position adjustment

Strategists at ING observe that "the dollar continues to trade with a soft undertone," which they see as "a mix of some aftereffects of AI-related concerns (Corewave bonds had another wobble yesterday) and stretched longs/ short-term overvaluations being unwound." They add that "the dollar no longer looks particularly stretched on our short-term valuation metrics." ING further notes that "we recognise that the softer dollar backdrop has shifted the balance of risks somewhat further in a USD-bearish direction." Even so, they "continue to favour a gradual and orderly dollar decline rather than a sharper depreciation," and stress that "the broader Fed, oil and rates narrative remains supportive."

"MUFG/BTMU: Recently the US rate market has been scaling back Fed rate hike expectations for this month and there is currently only around 4bps of hikes priced in after Fed officials including Chair Kevin Warsh refrained from signalling that they are in a rush to raise rates further after tightening policy for the first time last month."

Commerzbank: December hike priced, hawkish pause could support Dollar

Commerzbank points out that "for October - that is, next week - a rate hike by the Fed is generally no longer expected," while "a hike in December is already priced in." They add that "the market still sees a chance that another hike could come by the middle of next year," even though "our experts, however, do not foresee any further hikes after December." Commerzbank argues that "if the Fed delivers a hawkish pause next week, the dollar could gain some ground, at least in the short term." By contrast, "any deviation from a restrictive stance - which would cause the market to revise its expectations downward, especially for next year - is likely to put the dollar under pressure."

"MUFG/BTMU: The scaling back of October Fed rate hike expectations has helped to dampen the US dollar’s upward momentum in the near-term although further hikes remain likely."

The takeaway

MUFG/BTMU highlights that stronger US inflation data for September means a back-to-back Fed hike this month cannot be completely ruled out, even as reduced October pricing has damped near-term Dollar momentum. ING sees AI-related concerns and the unwinding of stretched longs as key to the current softer Dollar backdrop, while Commerzbank stresses that a "hawkish pause" next week could briefly lift the Dollar but a less restrictive stance is likely to weigh on it.