Markets have been tempted in the past couple of days to believe there is some truth behind the Washington Post’s report – quickly rebuked by Trump – that US tariffs will be only on selected products. Markets are also looking with interest at the timeline for the US Congress’ plan to pass a three-in-one bill for taxes, border and energy. Speaker Mike Johnson has set a rather ambitious April deadline, and that could suggest the new administration will have to focus efforts on domestic policies and at least delay a large-scale protectionism program, ING’s FX analyst Francesco notes.
DXY to consolidate just below the 109.0 mark
“For now, markets have been left guessing on tariffs, which allowed the US macro story to take over and unmistakably offer support to the US Dollar (USD). Yesterday’s US data releases were hawkish for the Fed, and the implied probability of a March rate cut has now dropped below 40%. Treasuries had another soft session yesterday, and stocks slipped, adding support to the safe-haven USD.”
“Aside from the stronger-than-expected JOLTS job market opening and the headline ISM services index, the most remarkable print was the ISM prices paid subcomponent, which spiked to the highest level since January 2023. If a generally resilient economy was already accounted for when the Fed met in December, a resurgence in inflation concerns could drive an even further hawkish tuning in the policy message.”
“The details of December’s FOMC will be released in today’s minutes, which could throw a bit more support behind the USD. Expect also some reaction to the ADP payrolls, even if they seldom predict official payrolls. Maybe more importantly, there is a planned speech by Chris Waller at 1400 CET: let’s see if he joins other members in flagging lingering inflation risks. We could see opposing forces on the USD today, as the technical/positioning picture still points to correction risk, but the Fed/macro picture may well continue to attract USD bulls. We could see a consolidation just below the 109.0 mark in DXY.”
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