USD: Dollar influenced by inflation and geopolitical stability concerns – ING

US Dollar Outlook Amid Geopolitical Tensions and Inflation Data

Francesco Pesole from ING observes that the US Dollar Index is currently lingering just under the 99.0 mark. He suggests that the dollar could weaken further if a lasting peace agreement is reached in the Middle East and oil shipments through the Strait of Hormuz return to normal.

Pesole also points out that today's US CPI release is unlikely to alter expectations for Federal Reserve policy unless inflation figures come in unexpectedly high. He notes that headlines about rising inflation make it more difficult for traders to take additional bearish positions on the dollar.

Impact of CPI and Global Events on the Dollar

The main focus today, aside from ongoing developments in the Middle East, is the March US CPI report. Market consensus anticipates headline inflation to climb by 0.9 percentage points month-over-month, reaching 3.4% year-over-year, while core inflation is expected to edge up slightly from 0.2% to 0.3% on a monthly basis.

According to Pesole, the Federal Reserve is primarily concerned with secondary effects, which typically show up in core inflation a few months after an initial energy price shock. Therefore, unless inflation data significantly exceeds forecasts, today's report is not expected to shift the Fed's policy outlook.

He also highlights the potential for domestic political fallout from higher inflation. Some Republican lawmakers have expressed frustration over the ongoing conflict and rising fuel costs, which could prompt former President Donald Trump to advocate more strongly for a peace settlement.

With inflation making headlines, the threshold for another decline in the dollar is now higher, even though developments in the Middle East remain the dominant factor influencing the currency.

Currently, the DXY index continues to trade just below 99.0, reflecting considerable optimism. However, a further drop in the dollar could materialize if a durable peace deal is reached and oil flows through the Strait of Hormuz are restored.

(This article was produced with assistance from an AI tool and subsequently reviewed by an editor.)