USD: Trade talks should be a dollar positive – ING

Ever since US President Donald Trump's 'Liberation Day' tariffs were introduced in early April, the FX narrative has really focused on what damage these tariffs would do to the US economy and the dollar. News, then, of a meeting in London today between US and Chinese officials should in theory be good news for the dollar. Presumably, both sides would not be meeting if they felt they couldn't put a deal together. In focus here will be whether the deal made in Geneva last month can be made permanent, and that the threat of 100%+ tariffs does not return, ING's FX analyst Chris Turner notes

DXY can drift towards the 99.40/50 area

"This all comes at a time when the MSCI world equity index is trading at all-time highs and investors seem to be taking a glass-half-full view of the world. This has seen traded FX volatility levels start to fall a little, even though we have some event risk on tariffs in early July. Lower volatility is also encouraging more interest in the carry trade, where Latam currencies and their 9-14% per annum implied yields are proving attractive."

"The main threat to this environment might once again prove the US bond market this week. We have $119bn of Treasury issuance Tuesday-Thursday; $58bn 3-year, $39bn 10-year and $22bn 30-year. Any poor auctions or a surprisingly wide May monthly budget deficit (released Wednesday evening) could easily see fiscal risk insert a risk premium back into US asset markets."

"When it comes to data this week, Wednesday's main event of the May CPI release may come in again at a benign 0.2% month-on-month on the core reading. There are no Federal Reserve speakers scheduled as we're now in the blackout period ahead of the 18 June FOMC meeting. Given the Whit Monday holiday in Europe today, FX trading could be a little more subdued. However, with a speculative market already short dollars, DXY could drift towards the 99.40/50 area in anticipation of some good news out of US-China trade discussions."