USD: Dollar rally unimpressive so far – ING

Last night's news that the US and China would begin formal trade talks on 10-11 May to de-escalate the tariff war saw the dollar briefly spike 0.4/0.5%. Remember that in April, the defensive yen and Swiss franc currencies were the big beneficiaries of 'reciprocal' tariffs and the uniform sell-off in US asset markets. In theory, then, de-escalation should see USD/JPY and USD/CHF lead the recovery. Despite the nice recovery in US equities, there still seems to be a sense of hangover in the FX and bond markets, ING's FX analyst Chris Turner notes.

DXY can drift back to 99.25 in quiet markets

"For today, we see two important US inputs to the dollar story. The first is Treasury Secretary Scott Bessent's testimony to the House on the 'State of the International Financial System'. Presumably, he'll argue that US bond markets are functioning in an orderly manner and probably repeat the mantra that Washington retains a strong dollar policy. It will be interesting, however, if he's quizzed on whether currency deals are part of the trade negotiations currently underway with 17 other trading partners. Expect Bessent to step carefully on this subject, but we think this testimony presents a downside risk to the dollar."

"We also have the FOMC meeting and Chair Powell's press conference this evening. We doubt this will prove a major market mover as the Fed continues to resist presidential pressure to cut rates. It seems the market is comfortable enough waiting for the next Fed rate cut in July, while also waiting on the hard data to determine how deeply the Fed cuts. Markets have recently pared back about 20bp of the Fed's next easing cycle – again asking why the dollar isn't doing any better?"

"DXY stalled last week exactly where it should have if we are seeing a weak bear market correction. We imagine there are a lot of protective buy stops above 101.00 now. But for the time being, DXY price action has been poor and a drift back to 99.25 in quiet markets will confirm that the dollar is struggling to shake the risk premium associated with uncertain US policymaking."