Dollar Rally Stretches as ING Warns of No Clear Reversal Trigger

The US dollar remains firmly supported by interest-rate expectations, geopolitical uncertainty and pressure across global bond markets, even as several indicators suggest its recent rally may be becoming overstretched.

Analysts at Dutch banking group ING believe the dollar could remain resilient in the near term because the market has yet to produce a convincing catalyst for a sustained reversal. Their assessment, reported by FXStreet on October 13, highlights the difference between a currency that appears overvalued and one that is ready to reverse direction.

The outlook leaves foreign exchange markets weighing two competing forces: signs that the dollar’s advance has gone too far and economic conditions that continue to support demand for the US currency.

Dollar Valuation Signals Point to an Extended Rally

According to ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner, the US dollar is trading above the levels indicated by their short-term valuation model against most major currencies in the Group of Ten (G10).

Their assessment puts the dollar approximately 1.1% above its estimated fair value against an equally weighted basket of G10 currencies. Sterling is the exception, with the model indicating that the dollar is trading around fair value against the British pound.

These readings suggest that the greenback’s recent strength may be difficult to sustain indefinitely. However, valuation measures do not necessarily identify when a trend will end.

A currency can remain expensive relative to its estimated fair value for an extended period if monetary policy, capital flows or global risk conditions continue to favour it.

This distinction is important for forex market participants. Overbought technical readings can signal that a rally is mature, but they do not independently establish that a reversal has begun.

Why the US Dollar Is Still Finding Support

Several factors are helping sustain demand for the dollar despite the stretched valuation signals.

1. Federal Reserve policy expectations

Expectations surrounding US interest rates remain a major influence on currency movements. If financial markets anticipate that the Federal Reserve will maintain restrictive monetary policy for longer than other major central banks, the dollar can retain an advantage.

Higher expected returns on US dollar-denominated assets can attract international capital, although actual flows also depend on market risk, asset valuations and expectations about future economic growth.

ING’s analysis suggests that expectations for US monetary policy remain relatively firm compared with those for several other central banks. This reduces the likelihood that stretched dollar valuations alone will trigger an immediate decline.

Investors are also monitoring inflation data and Federal Reserve officials’ comments for clues about the next stage of US monetary policy.

2. Oil prices and geopolitical tensions

Developments in the Gulf region have added another layer of uncertainty to the currency outlook. Increased military activity and concerns about energy supplies have contributed to fluctuations in oil prices and broader financial market sentiment.

Higher energy prices can complicate the inflation outlook, potentially reinforcing expectations that interest rates will remain elevated. At the same time, geopolitical uncertainty can encourage investors to seek relatively liquid assets, including the US dollar.

However, the relationship between oil and the dollar is not automatic. The direction of the currency also depends on how energy price movements affect US economic conditions, inflation expectations and the outlook for other economies.

Reuters reported on October 13 that the dollar had eased from recent highs as oil prices declined and bond yields stabilised. The development illustrates how quickly market sentiment can shift even when the broader dollar trend remains relatively strong.

3. Weakness in global bond markets

Bond market volatility is another important consideration. Rising government bond yields can reflect concerns about inflation, government borrowing requirements and the future path of interest rates.

When investors become more cautious about financial markets, the dollar may benefit from its liquidity and international role. This support can persist even when currency valuation indicators suggest that the US dollar has become expensive.

Nevertheless, higher bond yields do not always translate into a stronger dollar. If yields rise because investors demand greater compensation for fiscal or inflation risks, the currency response can differ from a rally driven primarily by stronger expected returns.

For now, ING’s assessment is that ongoing bond market weakness remains one of the factors limiting the prospects of an immediate and sustained dollar reversal.

Why an Overbought Dollar Does Not Guarantee a Reversal

The central point in ING’s analysis is that an extended rally requires more than valuation concerns to turn into a lasting decline.

Pesole, Taborsky and Turner point to the sharp change in US market sentiment in March 2025 as an example of how a powerful political or economic shock can disrupt an established dollar trend.

Without a comparable catalyst, stretched positioning and valuation readings may not be sufficient to produce a major reversal.

Potential triggers could include a meaningful shift in Federal Reserve policy expectations, a sustained easing of geopolitical tensions, a decline in energy prices or a change in global bond market conditions. Unexpected US economic data could also alter the balance between the dollar and its major counterparts.

Until such a development emerges, the market may experience periods of dollar weakness without necessarily entering a broader bearish trend.

US Midterm Elections Could Become a Future Market Risk

ING also identifies the upcoming US midterm elections as a potential source of currency uncertainty later in October and beyond.

Political developments can influence financial markets through expectations about fiscal policy, government spending, trade relations and the legislative agenda. Changes in the balance of power in Congress may therefore affect investor perceptions of US economic and policy risks.

However, election-related uncertainty does not automatically translate into dollar weakness. Market reactions will depend on the results, how much has already been priced in and whether the outcome changes expectations for economic policy.

ING’s assessment suggests that investors may not substantially adjust their positioning ahead of the vote until later in October. For now, monetary policy and broader financial market conditions remain more immediate drivers of the currency.

What the Dollar Outlook Means for EUR/USD and GBP/USD

The outlook for the dollar has direct implications for major currency pairs, particularly EUR/USD and GBP/USD.

EUR/USD

EUR/USD measures the value of the euro against the US dollar. When the dollar strengthens relative to the euro, the pair generally moves lower; when the euro outperforms the dollar, the pair tends to rise.

Persistent US interest-rate expectations and demand for dollar liquidity could continue to weigh on EUR/USD. However, a meaningful change in US monetary policy expectations or improving sentiment toward the eurozone could alter that direction.

Traders should also consider eurozone-specific risks, including inflation, economic growth and fiscal concerns, rather than treating the pair as a reflection of US developments alone.

GBP/USD

GBP/USD could respond differently because ING’s valuation model places sterling closer to fair value against the dollar than other major G10 currencies.

That finding does not mean sterling is guaranteed to outperform. The pair remains sensitive to relative interest-rate expectations, UK inflation, economic activity and changes in global risk sentiment.

For market participants, the key question is whether incoming data changes the relative outlook for the Federal Reserve and the Bank of England.

Readers can explore the fundamentals behind these currency movements in the SkyPress Forex Academy and the SkyPress Forex Trading Full Course.

What Traders and Investors Should Watch Next

Several developments could help determine whether the dollar’s rally continues or begins to lose momentum.

• US inflation figures: New inflation data could influence expectations for the Federal Reserve’s interest-rate decisions.
• Federal Reserve communication: Speeches and policy signals from central bank officials may change the market’s assessment of future borrowing costs.
• Oil prices: Changes in energy prices could influence inflation expectations, bond yields and demand for defensive assets.
• Government bond yields: A sustained stabilisation in bond markets could change the conditions supporting the dollar.
• Geopolitical developments: Any escalation or meaningful de-escalation of conflicts affecting energy supplies could alter market sentiment.
• US political developments: The approach of the midterm elections could introduce additional uncertainty into currency markets.

These factors should be assessed together rather than in isolation. For example, falling oil prices could reduce inflation concerns, but the effect on the dollar would also depend on changes in interest-rate expectations and global demand for liquidity.

Conclusion: A Stretched Rally Is Not Yet a Confirmed Reversal

The US dollar’s recent advance is showing signs of becoming stretched, according to ING’s valuation assessment. Nevertheless, the strategists do not consider those signals sufficient evidence that a sustained reversal is imminent.

Relatively firm Federal Reserve policy expectations, geopolitical uncertainty and weakness across global bond markets continue to provide potential support for the greenback. A more durable decline may require a clear shift in one or more of these underlying conditions.

For forex market participants, the distinction between an overextended rally and a confirmed trend reversal remains essential. Valuation indicators can help identify potential risks, but economic data, monetary policy and price behaviour will be important in determining whether the dollar’s momentum actually changes.

As markets approach the next round of US economic releases and political developments, the dollar’s direction is likely to remain closely linked to changes in interest-rate expectations and global risk sentiment.

Frequently Asked Questions

Why does ING believe the US dollar rally is overextended?

ING’s short-term valuation model indicates that the dollar is overvalued against most G10 currencies, with an estimated 1.1% overvaluation on an equally weighted basis. Sterling is the exception, trading around fair value against the dollar in the model.

Does an overbought US dollar mean it will fall soon?

No. Overbought conditions can indicate that a rally has become stretched, but they do not establish when a reversal will occur. Monetary policy expectations, economic data and market sentiment can keep a currency strong despite elevated valuations.

What could cause the US dollar to weaken?

Potential triggers include a shift toward easier Federal Reserve policy, easing geopolitical tensions, lower energy prices or improving global bond market conditions. The impact would depend on how these developments affect the dollar relative to other currencies.

How could dollar strength affect EUR/USD?

A stronger dollar relative to the euro generally puts downward pressure on EUR/USD. However, developments in the eurozone and changing expectations for European Central Bank policy can also influence the pair.

Is this article financial advice?

No. This report is intended for educational and informational purposes only. It does not recommend buying or selling any currency or financial instrument.

Sources

• FXStreet — Reporting on ING’s assessment of the US dollar’s overbought conditions and the lack of a clear reversal catalyst, October 13, 2026.
• ING analysis republished by TalkMarkets — FX Daily: No Trigger in Sight for a Dollar Reversal, October 13, 2026.
• Reuters — Dollar market developments amid geopolitical risks, oil price movements and changing interest-rate expectations, October 13, 2026.

Disclaimer: This article is published by SkyPress for educational and informational purposes only. It does not constitute financial, investment or trading advice, nor is it a recommendation to buy or sell any financial instrument. Currency and other financial markets involve substantial risk, including the possible loss of capital. Readers should conduct their own research and consult a qualified financial professional where appropriate. SkyPress does not guarantee the accuracy or completeness of market information or future market outcomes.