USD: Does Bessent care about a dollar rebound? - ING

The dollar recovery is extending thanks to a broader de-escalation by the Trump administration on both US protectionism and Fed independence. There is probably a feeling from market participants that they have regained some 'control' on the US government, and can somehow force a more friendly stance on key topics. That assumption is however far from a guarantee. Risk assets were already wrongfooted once by Trump's 90-day tariff pause only to get hit with substantial hikes in Chinese duties shortly after, ING's FX analyst Francesco Pesole notes.

Dollar climbs on Trump's softer tone

"As highlighted in recent commentaries, there isn't a G10 currency with a higher positive beta to news of tariff de-escalation than the dollar. What we have seen in the past few weeks is a clear skew towards bearish USD sentiment which mirrored a lack of trust in the US as an investment environment. Markets will be highly tempted to sell the dollar in the rallies at the slightest indication that Trump's more conciliatory tone on China and the Fed is changing. In other words, investors will be seeking confirmation of the more optimistic stance on US assets to justify further dollar gains."

"Alongside indications from Trump that China will soon get a new tariff rate, a lot of focus was on yesterday's comments by Treasury Secretary Scott Bessent at an IIF event. We think it's quite relevant that he again reiterated the US has a 'strong dollar policy'. We have suspected that the plans for a weaker dollar would have only come after an initial positive USD response to tariffs had helped shield US consumers from protectionism-led inflation. If Bessent sounded at ease with some reserve flows heading to the euro, he also affirmed that the haven status of the dollar won't be dented."

"We sense the Treasury has been unhappy with the sudden loss of confidence in the greenback, and Bessent has appeared to offer some verbal support in back-to-back remarks on Tuesday and Wednesday. So far, it has worked. The dollar rebounded from Monday's selloff, but - as discussed - we think Trump needs to keep feeding markets with positive news to fuel further dollar gains from here. Already this morning, we are seeing a tendency to sell the dollar rallies, with USD/JPY more than half a percent off overnight the 143.50 peak."