Softer tone as crude jumps and Fed stays steady – ING

ING’s Chris Turner argues the Dollar (USD) could ease as US light crude trades above $100 and markets look for signs of de-escalation in the Middle East. A relaxed Federal Reserve (Fed) tone has pushed money markets back toward pricing a rate cut by year-end. Mixed US data and month-end equity outperformance may also generate Dollar selling.

Fed tone and oil shock weigh on Dollar

“Perhaps also helping risk markets have been some comments from the Fed over the last 24 hours. Fed Chair Jerome Powell yesterday sounded quite relaxed and said that medium-term inflation expectations were well-anchored. Clearly, there was no fuel to the view of early Fed hikes here, and money markets switched back towards pricing a Fed cut by the end of the year.”

“US data should be mixed news for the dollar today. JOLTS job opening data is for February and may be reasonably robust. Consumer confidence data is for March, however, and is expected to head back towards the lows seen last April.”

“The above could mean a slightly softer day for the dollar, where DXY is currently pressing the top of a nine-month trading range at 100.50. We should also look out for month-end fixing flows today. US equities have slightly outperformed overseas equities this month, meaning there could be some dollar selling coming through as the buy-side rebalances its portfolios.”

“Trying to second-guess White House policy remains a hazardous occupation, but this Tuesday morning it seems investors are minded to look out for any signs of de-escalation. Helping those views has been a Wall Street Journal report that President Trump is willing to end the war without reopening the Strait of Hormuz. With US light crude now trading above $100/bl – a sensitive level for the White House, apparently – the market will be on the lookout for any softer US rhetoric today.”

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