USD: Inflation and peace risks shape Dollar – ING

ING’s Francesco Pesole notes that the US Dollar Index remains just below 99.0, with further downside seen if a permanent Middle East peace deal is agreed and Strait of Hormuz flows resume. He argues today’s US CPI data are unlikely to change Federal Reserve pricing unless inflation surprises on the upside, and that higher inflation headlines raise the hurdle for additional bearish Dollar positioning.

Dollar weighed by CPI and geopolitics

"Today’s key area worth watching outside of Middle East headlines will be the US CPI report for March. We are aligned with consensus in expecting a 0.9ppt monthly jump in headline CPI to 3.4% year-on-year, while core CPI should accelerate only modestly from 0.2% to 0.3% month-on-month."

"What matters for the Federal Reserve are second-round effects, visible – if anything – in core inflation after a few months from the initial energy shock. As such, today’s release should not be a game‑changer for Fed pricing unless inflation surprises meaningfully on the upside."

"It is also worth watching the domestic political backlash from higher inflation. Some Republicans have voiced discontent over the war and rising gasoline prices, which could increase pressure on President Donald Trump to push for a peace deal."

"Anyway, with hot inflation grabbing headlines, the bar for another dollar drop should be a bit higher today, even if Middle East developments remain the primary driver."

"DXY keeps hovering just below 99.0. These levels clearly embed plenty of optimism, but another leg lower for USD is on the cards once, or if, a permanent peace deal is agreed and Strait of Hormuz flows resume."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)