FX Daily: Dollar shows fresh vulnerability to oil price drops

The dollar is vulnerable to further oil-price declines, but ING expects only a gradual and orderly depreciation as the Fed, oil and rates backdrop remains broadly supportive.

• The dollar has softened amid AI-related concerns, including another wobble in CoreWeave bonds, and the unwinding of stretched long positions; GBP, NOK and AUD look slightly rich against the USD, while EUR, JPY, SEK and NZD remain undervalued within 1.5 standard deviations.
• A brief fall in Brent on unconfirmed Middle East negotiation news pushed DXY down to 101.50, suggesting that improved oil supply and reduced geopolitical risk could increasingly weigh on the dollar.
• French fiscal concerns and social unrest drove the 10-year OAT-Bund spread to 157bp, near the 159bp high of 2 October; EUR/CHF could fall below 0.920 if support around 0.9230 breaks, while EUR/USD may consolidate at 1.120-1.125.
• UK September headline inflation reached 3.5% and services inflation 3.7%, supporting a likely November BoE hike, although ING considers expectations for 100bp of tightening by June excessive and sees correction risks for sterling.
• ING expects New Zealand 3Q CPI to slow from 4.1% to 3.8% and, absent a major downside surprise, forecasts a 25bp RBNZ hike next week and NZD/USD above 0.570 by year-end; Hungary's planned deficit reduction from 4.9% next year to 2.8% by 2030 supports its domestic outlook, despite global headwinds.

Takeaway: Investors should favour a measured bearish-dollar view rather than anticipate a sharp collapse, while monitoring Middle East developments, oil prices, French fiscal risk, central-bank repricing and crowded sterling or Hungarian positions.