USD: Tariff threat keeps the dollar heavy - ING

Dollar gains on the back of a stronger US jobs report proved fleeting. While one can argue that the data perhaps was not as strong as the headlines suggested, the US bond market saw it as a good number and US yields are 10-12bp higher across the curve, ING's FX analyst Chris Turner notes.

DXY to trade well within this week's 96.35-97.45 range

"Normally, this would be associated with a stronger dollar, but today the dollar is barely off the recent lows. Here it seems the market is bracing for some more tariff-related volatility. That can be seen in the term structure of the traded FX options market, where EUR/USD volatility remains elevated for the next three weeks before starting to edge lower for the rest of the year."

"In focus is Washington's next step in its tariff war. In theory, if a country has not signed a trade deal with the US by 9 July, elevated 'Liberation Day' tariffs will revert - e.g. rising from the discounted 10% levels back to 20-30%. President Trump has suggested letters are being sent out to trading partners over the next few days telling them of their new tariff rate. Needless to say this could be a noisy period for FX markets as the White House again makes heavy threats in order to get trade deals over the line."

"As a reminder, the top G10 FX performers during the worst of April's volatility were the Swiss franc, the euro and the yen - in that order. The dollar was broadly offered. And yesterday's FX price action suggests investors and corporates were more than happy to sell dollars into rallies. We can't expect too much from FX markets today given the 4 July US public holiday. Yet the dollar looks as though it will stay soft into next week. DXY to trade well within this week's 96.35-97.45 range today."