USD: Trade risks and Iran tensions weigh – ING

ING’s Chris Turner notes the Dollar is starting the week softer as investors reassess US trade policy and geopolitical risks involving Iran. He highlights the shift to a 15% Section 122 import surcharge and potential synchronized weakness in Treasuries, equities and the Dollar. Turner expects Federal Reserve commentary and US data to shape moves, with DXY likely confined to a 97.00-98.00 range.

Soft start as policy risks build

"On the trade side, the world now has to deal with a 15% Section 122 import surcharge, rather than the varying tariff levels imposed under the prior IEEPA regime. This means that the likes of China and Brazil could get lower tariff rates, but countries such as the UK and Australia would lose the advantage of their 10% negotiated deals."

"In our market reaction piece on Friday, we felt one of the cleanest moves would be for US Treasuries to weaken on fiscal concerns. Holidays in Asia have meant we have not seen much US Treasury action overnight, but certainly the FX market will be taking its cue from Treasuries today. There is a small chance of a synchronised sell-off in Treasuries, equities and the dollar if investors believe that one of the core pillars of Washington's economic policy is starting to crumble."

"For today, we are interested in a speech from the Federal Reserve's Christopher Waller at 2:00pm CET. He voted for a 25bp cut in January. Presumably, he will stay dovish today with his stance that a rate cut should prove precautionary against a further deterioration in the US labour market."

"Any less dovish statements could give the dollar a bounce, given the influential nature of his speeches over recent years."

"The risk of a military strike on Iran probably discourages heavy dollar selling this week, but we can see DXY softening within a 97.00-98.00 range."

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