USD: Protectionism fears revamped - ING

This was meant to be a week for FX to reconnect with central bank events after a Trump-dominated start to the year. So far, it's proven to be quite the opposite. The announcement by Chinese startup DeepSeek of a more affordable AI model to rival US tech giants has shaken highly valued US tech equities and sent global stocks tumbling, ING's FX analysts Francesco Pesole notes.

Equity futures point to some potential stabilization

"What appeared clear is that the dollar did not act as efficiently as a safe haven in an equity selloff, as markets focused on the potential wealth effect on US consumers and increased dovish bets on the Fed. So, while the usual risk-sensitive currencies like AUD, NZD, NOK and CAD came under pressure from the souring sentiment, it's the canonical low-yielders JPY and CHF that acted as preferred safe haven channels rather than the USD."

"However, the USD snapped back higher across the board late yesterday as Trump revamped the relatively dormant theme of universal tariffs. The FT first reported that new Treasury Secretary Scott Bessent is pushing for a gradual rise in universal tariffs starting from 2.5%, and potentially up to 20%. Trump later said that he wants 'much bigger' tariffs than 2.5% and is considering targeted duties on products like steel, copper and semiconductors."

"Equity futures point to some potential stabilization today, although the risk of further valuation-led repricing in US tech stocks remains material. Even if the dollar is not the preferred haven in those equity selloffs, tariffs are a bigger and longer-term concern for the broader FX sphere, and the perceived inflationary effect of protectionism already seems to be offsetting the equity-led dovish repricing in Fed expectations. Unless the Fed offers hints that it's keeping a close eye on equity volatility tomorrow, there is too little on the macro side to suggest a dovish tilt and the dollar can find additional support."