USD: The dollar is fragile - ING

This week's events have added to the appeal of FX as an asset class. We have seen two completely independent stories emerge in the US and Europe, narrowing the wedge between growth, interest rates and currency valuation, ING's FX analyst Chris Turner notes.

Consolidation in the 103.75-104.50 area may be the order of the day

"Here the new US Administration's highly uncertain tariff policy looks to be damaging confidence and impacting activity. My colleague, James Smith, made a great point this week referring to Brexit; UK investment slumped in the run up to the anti-EU vote given the uncertainty. However, it rebounded strongly even after what was perceived as a bad trade deal was signed. The same can be true of the US, where businesses and consumers just want some certainty and are not getting it so far."

"Some softer US data and the year-to-date fall in US equities have seen short-dated US swap rates - so important for dollar pricing - drop 45bp from last month's peak. Markets are now starting to push the terminal rate for the Fed easing cycle under 3.50%. Maybe this has come a little too far, a little too fast, but today's February jobs number should have some say about that. The market looks to be positioned for some soft data. The consensus is for a 160k gain and the unemployment rate to stay low at 4.0%."

"The US Dollar (USD) is fragile and would be hit by a soft number. However, the DXY has already seen its biggest weekly drop since November 2022 and current long dollar positioning is probably nowhere near where it was in late 2022 after a two-year dollar rally. 104.00 looks decent support in DXY, but unless we get a big downside miss in today's jobs reports, a little consolidation in the 103.75-104.50 area may be the order of the day. Given this week's events and the fact that DXY is heavily weighted towards European currencies, it seems fair to say that DXY has now topped for the year."