USD: Equities providing shield against bad data - ING

The US Dollar (USD) continues to be pulled by opposing forces: US President Donald Trump's scaling back of some protectionism measures versus data evidence of a US slowdown. Ultimately, the tiebreak for FX impact seems to be equities performance. US stocks had a good day yesterday as some tariff exemptions for auto parts outweighed poor data, and the dollar was moderately stronger across the board. We also believe some month-end rebalancing contributed to supporting the dollar, ING's FX analyst Francesco Pesole notes.

USD is set to be neutral on Wednesday

"Today, all eyes will be on the US first-quarter GDP print. Economists have revised their forecasts lower following yesterday's much wider-than-expected goods trade deficit figures for March, and consensus now sits at -0.1% quarter-on-quarter annualised. Our economics team agrees that a negative read is quite likely. Markets will, anyway, look at how much of the slowdown is attributable to rising imports due to pre-tariff hoarding relative to an effective slowdown in consumption."

"The other two key releases today are the ADP employment figures for April and March's core PCE (the Federal Reserve's preferred measure of inflation). The latter is expected to slow down to 0.1% month-on-month, which may lead to some Fed members feeling more comfortable when discussing easing prospects, and can potentially fuel some momentum to fully price in a cut in June (now 17bp factored in)."

"We have a neutral bias on the dollar today. While the data flow should continue to prove a net-negative, markets are clearly welcoming Trump's efforts to ease some tariff pain. We still believe that a constant flow of constructive news on trade (especially regarding China) is needed to keep equities and the dollar supported, but for now, it might be enough to let the dollar stabilise into Friday's payrolls."