USD: Data and Trump help the dollar – ING

Yesterday, we noted that the dollar needed some positive data surprises to regain firmer footing, and May’s consumer confidence figures delivered. The index rebounded sharply to 98.0 from April’s 86, well above the 87 consensus, offering a tentative signal that the US-China deal – and, even more so, the equity rebound – have helped reassure US consumers. The Dallas Fed manufacturing index also surprised to the upside, adding to the more favourable outlook for the dollar, ING's FX analyst Francesco Pesole notes.

USD finds support in strong consumer confidence data

"A more conciliatory tone from President Trump towards the EU, coupled with reports of pressure from some EU leaders for a quick trade deal, also contributed to the squeeze in USD shorts. Meanwhile, Japanese officials said they aim to reach a deal with the US before the G7 meeting between 15-17 June. While an EU-US deal is unlikely to include currency clauses (and would probably be USD positive), there is growing speculation that Japan may have to agree to limit JPY depreciation versus the dollar. If so, this could trigger a sharply negative USD reaction as markets price in the risk of similar FX clauses in other Asian trade deals."

"The highlight of today’s US calendar is the FOMC minutes from the 7 May meeting. Markets will be looking for clues on where the Fed stands regarding the transitory nature of tariff-driven inflation. With two rate cuts priced in by year-end, the market consensus seems in line with Fed Chair Jay Powell’s cautious tone, though risks remain tilted slightly to the dovish side. It’s worth noting that the FOMC met before the US-China deal, so members were working off an average US tariff rate of 23%, not the current 13% (our estimates)."

"In general, markets tend to lean bearish toward the dollar. More positive data surprises are needed to rebuild confidence in US growth, and deficit worries aren’t disappearing anytime soon. When adding the themes of de-dollarisation and Trump’s plans for a weaker dollar in the longer run, we still think the greenback rallies can fade from here. We have been flagging downside risks for the dollar in the near term. The upside surprise in consumer confidence reduces those risks, but we remain cautious about chasing the DXY above 100."