USD: Trade versus geopolitical news - ING

The situation in Israel and Iran has shown few signs of de-escalation, and while that is offering intermittent support to the dollar, it has so far failed to generate a major rebound in the greenback, ING's FX analyst Francesco Pesole notes.

FOMC announcement looming on Wednesday

"The main geopolitics-FX channel remains oil, whose price action suggests markets believe the worst of the impact may be past us. While a risk premium on crude prices remains warranted for now, investors look minded to gradually scale it back unless they see evidence of serious supply disruptions. The US is attempting to broker some talks between Iran and Israel, and any signs of de-escalation should harm the dollar from here."

"What we think is more likely to have a positive USD impact is the G7 summit in Canada. Today, we could see most headlines centred on trade discussions, and Trump has in the past tended to turn less hawkish on protectionism after direct talks with foreign leaders. Any indications that the 90-day tariff pause will be extended should offer decent support to the dollar."

"On the data side, the US releases retail sales figures for May after a surprisingly big drop in the Empire index yesterday, which confirmed that there are still mostly negatives from US tariffs for US manufacturers. We see some upside risks for the dollar today given the possibility of constructive remarks on trade coming from the G7 summit. However, with the FOMC announcement looming tomorrow, there could be more cautiousness in chasing moves in either direction in USD crosses."