The U.S. dollar began the week on a softer note, under pressure from renewed concerns about the country’s growing fiscal deficit and escalating trade tensions—despite President Donald Trump temporarily stepping back from a proposed 50% tariff on imports from the European Union.
Analysts at ING noted that while markets had largely moved beyond the tariff threats that emerged in April, recent developments have reignited investor anxiety about U.S.-EU trade relations.
“If there’s a lesson from April, it’s that the dollar bears the brunt of tariff drama,” the bank said.
Although short-term valuation models point to the dollar being significantly undervalued—by roughly 4% against the euro, pound, and Canadian dollar, and 3% against the yen and Australian dollar—ING cautioned that these indicators are currently less reliable, given that the dollar is not behaving in line with usual macroeconomic trends.
“In many respects, it’s behaving more like an emerging market currency,” ING’s analysts observed, pointing to investor unease over inconsistent fiscal policy and long-term debt sustainability.
A notable divergence has also emerged between U.S. Treasury yields and the performance of the dollar. ING highlighted that:
“The 60-day correlation between 10-year Treasury yields and US Dollar Index started the year at 0.68, and now sits at zero.”
This disconnect further complicates traditional forecasting models and suggests that investor sentiment is overriding typical economic linkages.
Key Economic Data on Deck
Traders are now awaiting a series of high-impact U.S. economic indicators to gauge the dollar’s next move. Tuesday’s Conference Board Consumer Confidence Index is expected to show a modest recovery to around 87. However, ING believes stronger data may be necessary to shift market perceptions.
“The dollar may require a return above the 90 mark to start pricing out the growth risks,” the bank warned.
In addition to consumer sentiment, the April durable goods orders report is due and forecast to reflect a decline from March’s robust performance. Later in the week, updates on personal income, PCE inflation, and the minutes from the latest Federal Reserve meeting could further influence the dollar’s trajectory.
With foreign exchange markets subdued on Monday due to public holidays in the U.S. and U.K., market participants are expecting more directional clarity as the week progresses.
“Our view is that the balance of risks remains skewed to the downside for the dollar due to deficit concerns and trade uncertainty,” ING stated, adding that without notable economic strength, “a retest of the 98.0 April lows in DXY looks more likely than a rebound to 100.0 at this point.”