USD: April spending and inflation data in focus - ING

Yesterday's dollar rally didn't last long. It quickly became clear that the Trump administration would pursue other trade laws to enact its tariffs, and later, the US Court of Appeals proposed a delay in the original court ruling that tariffs were illegal. The suggestion now is that a further presentation of evidence could last up until 9 June in the appeals court, ING's FX analyst Chris Turner notes.

DXY can make a run back to 98.70

"What weighed on the dollar more yesterday seemed to be the US macro data. Personal consumption got revised down to 1.2% from 1.7% quarter-on-quarter annualised in the first quarter GDP release. And a pick-up in initial claims didn't help either. In effect, we saw a return to traditional correlations, where US Treasury yields dropped 5bp and the dollar weakened."

"Traditional macro correlations could be in store for the dollar today. The focus here is on the April PCE data. Perhaps most important will be the personal spending number, which is expected to soften to 0.2% month-on-month from 0.7%. Any downside miss here would hit the dollar. The market will also be looking at the price data. This is expected to be very benign, with the core deflator still at 0.1% MoM, bringing the year-on-year rate to 2.5% - the lowest since 2021."

"Friday is also our day to report on Fed Custody holdings of US Treasuries for foreign official accounts. In the week to Wednesday, these actually rose $10bn. So no evidence this week of a further divestment in US assets. Remember, the Fed thinks it's hedging, not divestment, that has been driving the dollar lower recently. DXY could make a run back to 98.70 should personal spending disappoint today."