USD: Sizing the correction – ING

The Dollar Index (DXY) is down just over 3% from its early January high. There is a sense that US President Donald Trump's bark is worse than his bite when it comes to trade (Mexico and Canada given a temporary reprieve on tariffs) plus Friday's release of January US retail sales data warns that US growth is starting 2025 on a softer footing. At the same time, some overseas economies – such as Japan – have been showing better-than-expected growth, ING’s FX analysts Chris Turner notes.

The 106.00/106.35 area to mark the low point for DXY

"The question is: how much further does the dollar need to correct? We are in the camp answering: 'not much'. It is clear that the threat of tariffs has not receded and that the broad foundations laid for 'reciprocal' tariffs announced last week mean that substantial tariffs will be coming probably in the second quarter. Tariffs are positive for the dollar – even though the dollar already rallied 10% between October and January."

"Unless you have a strong conviction that US activity data is going to decelerate sharply from here, to us it looks like we're getting towards the end of this dollar correction. We suspect that something like the 106.00/106.35 area will mark the low point for DXY in the first quarter."

"In terms of events this week and after today's Presidents' Day US public holiday, attention will turn to events in Saudi Arabia and Europe as US, Russian, and European leaders discuss how to end the war in Ukraine. The US data calendar is pretty light this week, with just FOMC minutes on Wednesday and business and consumer confidence figures on Friday standing out."