USD: More tariffs are coming – ING

Friday's relatively strong US job report numbers and the broadening of US tariffs are keeping the dollar supported. On the former, the jobs report has seen expectations of Federal Reserve easing this year pared back to just 35bp. Those Fed easing expectations could narrow even further this week. Another 0.3% core month-on-month CPI reading on Wednesday will not help the disinflation story and we'll also get to hear from Fed Chair Jerome Powell in his semi-annual monetary policy testimony to Congress on Tuesday and Wednesday. It is hard to see why Powell would want to push a more dovish narrative right now, ING's FX analyst Chris Turner notes.

DXY to edge towards the top of a 108-109 trading range

"When it comes to tariffs, it's hard to keep up with developments. We've had the threat of tariffs against Canada and Mexico seemingly for the strategic domestic agenda of fentanyl and immigration. Tariffs against China have already gone into place. Over the weekend a new set of 25% tariffs were announced on steel and aluminium tariffs. In the frame here again are Canada, Mexico, and China plus Brazil, South Korea and Germany too. These tariffs could be seen to fall under the category of protecting critical industries."

"But it also seems that, over the next couple of days, we might see the imposition of 'reciprocal' tariffs – i.e., trying to level the playing field on trade. We had thought that these might come in during the second quarter after the Commerce Department delivers its report on why the US runs perennial trade deficits. If these reciprocal tariffs come in this week against those countries who have a higher tariff rate than the US, then it may be countries like Brazil, India and Korea who are most exposed. That said, reports have also suggested that reciprocal tariffs could impact everyone, and the auto sector has been highlighted as well."

"Needless to say, much uncertainty about the nature, timing and magnitude of these tariffs looks likely to keep the dollar supported this week. The main threat to long dollar positions could be a re-assessment of European prospects should any expectations of a Russia-Ukraine ceasefire grow later this week. However, for the time being, we doubt investors will want to let go of overweight positions in the dollar and we can see DXY edging towards the top of a 108-109 trading range through the early part of this week."