USD: Scope for further correction unless new tariffs announced – ING

On a normal day in FX markets, yesterday's much-higher-than-expected US inflation print should have left the US Dollar (USD) stronger across the board and risk assets under pressure. That was the case for a few hours before the headlines hit that Trump had had a 90-minute call with Putin to discuss an end to the fighting in Ukraine. For now, financial markets are overlooking what a shift to US isolationism would mean for European security. In Brussels yesterday, new US Defence Secretary Pete Hesgeth said that US troops would not be part of any peace-keeping force in Ukraine and that such a force would not be protected by NATO's Article 5, ING’s FX analysts Chris Turner notes.

DXY to move towards 107.00/30

"Instead, financial markets are focusing on the benefits of improved confidence in the region and less disruption to global energy supplies. Here crude oil and European natural gas prices came off sharply yesterday – a good news story for global growth and a mild dollar negative. At the same time, there is a little optimism emerging in Chinese asset markets, where local tech stocks are doing a little better post the DeepSeek news and once again expectations are building that Chinese policymakers might have some new support measures to announce when they next meet in early March. This has seen the onshore USD/CNY cross back under 7.30 again."

"The above all sounds positive for global growth expectations and could encourage some paring back of short positions in commodity and EM currencies. What is limiting that correction, however, is the ongoing threat of tariffs. The prospect of 'reciprocal' tariffs is still hanging over FX markets this week and apparently Trump signs his next batch of executive orders at 19CET today. The market will be focusing on whether those tariffs only hit the likes of India, Brazil and Korea – which are among the higher tariff regimes. And also whether these tariffs are again back-dated – providing, for example, a month for the tariffs to be negotiated away."

"Away from geopolitics and tariffs, today's US focus is on the initial jobless claims and PPI. Any upside surprise to PPI – and what it means for the core PCE deflator released on 28 February – is a mild dollar positive. But for now, we slightly favour a move in DXY towards 107.00/30, with outside risk to the 106.35 area."