USD: Risk sentiment softer again today - ING

The bond market had a counterintuitive reaction to yesterday's cooler-than-expected core CPI data (0.2% MoM), with the Fed's terminal rate pricing inching higher and Treasuries soft across the curve. This could mirror some reluctance to buy into the deflationary story before the tariff impact has started to show, ING's FX analyst Francesco Pesole notes.

Upside risks for the greenback

"The US Dollar (USD) followed UST yields higher but is still losing against most G10 peers since the start of the week. The canonical negative USD-equity market correlation has dwindled in the past weeks as US stocks are trading closely in line with US activity sentiment. Again, the key is whether more equity declines are a US-only matter or followed by European stocks. Futures point to the latter today, so the dollar may not face much idiosyncratic pressure."

"The main event in the US calendar today is the release of PPI data for February. Many core PPI components feed into the Fed-preferred core PCE, so markets will be quite attentive. Still, following yesterday's unusual reaction to CPI data, we are not sure a cooler print today would trigger a dollar correction. Consensus is for a 0.3% MoM core PPI print, but expectations may have shifted to a slightly lower figure after yesterday's CPI."

"Anyway, what seems to be weighing on sentiment this morning is the higher risk of a US government shutdown after Senate Democrats said they would block the bill to avert a government shutdown. The proposed alternative is an interim funding plan until 11 April: that would simply postpone a key risk for markets, hence the negative reaction in stock futures. Moving on, it is probably a USD-negative development given the current tight correlation between the US economic outlook and the dollar. We don't have a high conviction directional call for the dollar today. A stabilization might be on the cards for now; in the coming weeks, we still see upside risks for the greenback."