It is too early to see a more structural dollar downtrend – ING

An extension of supported risk assets kept the dollar under pressure at the start of this week. The dollar correction may extend a little further today as slowing US CPI could help risk sentiment further. However, in the opinion of economists at ING, it is too early to jump on the bearish dollar ship.

Another leg lower with US CPI slowing?

“Today’s US CPI figures for August are a risk event for the dollar. All in all, and given the recent hawkish messages by Fed Chair Jerome Powell, it appears unlikely that – barring significantly below-consensus reads – expectations around Fed tightening will be heavily affected by today’s CPI report. That said, there is surely a possibility that a risk-on environment may be bolstered further by evidence of US inflation having peaked, and another leg lower in the dollar may be triggered by another good session for global equities.”

“The narratives behind the recent FX moves are not solid enough for the strong bearish call on the dollar just yet. Optimism about the Ukraine conflict and lower gas prices may be misplaced or too premature, so the dollar may stabilise or recover later in the week.”

See – US CPI Preview: Forecasts from 12 major banks, inflation begins to ease