USD: A week full of noise – ING

A slew of soft data and renewed expectations that US President Donald Trump's tariffs will only be a short-lived transactional measure hurt the dollar last week. The direction of US protectionism will be the main driver beyond the short term, and we should see the discussion on Mexico and Canada tariffs return to centre stage as the deadline for the delayed tariffs is a week away. Canada is already disproportionately affected by US metals tariffs, and our working assumption is that Trump won't go ahead with 25% tariffs on his neighbours. However, a series of hawkish comments from Trump followed by a last-minute deal would be a familiar script, ING’s FX analysts Francesco Pesole notes.

Upside risks to DXY beyond very short-term swings

"The dollar has become more sensitive to US data (also non tier-one), and there are a few market moving releases in this week’s calendar. Today, the Chicago and Dallas Fed indices should be overlooked, but tomorrow’s Conference Board consumer sentiment indicator is key. We have seen indications – from both data and corporate earnings guidance – that the consumption story has deteriorated at the start of 2025."

"We doubt we’ll see one-way-traffic on the dollar this week. Markets are keen to close dollar longs on the back of softening US data, and a residual negative correction is still owed by the dollar should Russia and Ukraine agree on a peace deal. Yesterday, Ukrainian President Volodymyr Zelensky offered to step down in exchange for peace and NATO membership. At the same time, the looming Canada and Mexico tariff deadline and a 0.3% MoM core PCE can support the greenback."

"There are many irons in the fire, and markets don’t have the privilege of looking much beyond daily developments. We have a flat bias for the dollar today as the rebounding momentum from Friday has been tampered by a market-friendly German election result. We continue to see upside risks to DXY beyond very short-term swings."