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The US dollar commenced the week with renewed strength, driven by defensive strategies ahead of the impending tariff announcement. Assuming no disappointing data releases (namely JOLTS and ISM manufacturing figures), the dollar may see a slight upward trend today. Hawkish comments from the ECB are weakening Central and Eastern European currencies, yet the dominant factor remains the US tariffs.
Currency markets responded to the looming tariff threat early this week, bolstering the dollar across the board. USD/JPY found support, while higher-beta currencies faced downward pressure. The Australian and New Zealand dollars underperformed, seemingly due to the expectation of continued US protectionist focus on China.
The Reserve Bank of Australia maintained stable interest rates as anticipated, initially causing a temporary rally in the AUD. However, it has largely returned to yesterday’s levels.
Despite recent fluctuations, the dollar possesses substantial potential for further gains should tomorrow’s tariff announcement lean towards a hawkish outcome. Conversely, it remains susceptible to data-driven downward pressures.
Today’s US macroeconomic data will significantly influence FX movements. Barring any data surprises, we anticipate the dollar’s tentative recovery to persist, especially given recent US administration statements that temper expectations of a lenient tariff announcement. DXY could potentially surpass 104.50 before the official reveal.
EUR/USD briefly dipped below 1.080 before rebounding. The euro has displayed relative resilience to the ongoing tariff issues.
