According to ING’s Francesco Pesole, the US Dollar Index (DXY) remains just below 99.0, with its trajectory influenced by both inflation data and geopolitical developments in the Middle East [1]. Pesole notes that a permanent peace deal in the region and the resumption of flows through the Strait of Hormuz could lead to further downside for the Dollar [1]. The key market event to watch is the US Consumer Price Index (CPI) report for March, with consensus expectations pointing to a 0.9 percentage point monthly jump in headline CPI to 3.4% year-on-year, while core CPI is anticipated to accelerate modestly from 0.2% to 0.3% month-on-month [1].
Pesole emphasizes that the Federal Reserve is primarily concerned with second-round effects, which would be visible in core inflation a few months after an initial energy shock. He suggests that unless inflation surprises meaningfully on the upside, today’s CPI release is unlikely to be a game-changer for Fed pricing [1]. However, headlines about higher inflation are raising the hurdle for additional bearish Dollar positioning, making another drop in the Dollar less likely unless there is a significant inflation surprise or a breakthrough in Middle East peace negotiations [1].
Political factors are also at play, with some Republicans expressing discontent over the ongoing war and rising gasoline prices. This could increase pressure on President Donald Trump to push for a peace deal, which would have implications for the Dollar’s direction [1]. Despite the optimism embedded in current Dollar levels, Pesole maintains that another leg lower for the USD is possible if a permanent peace deal is agreed and Strait of Hormuz flows resume [1].
CONCLUSION
The US Dollar remains stable just below 99.0, with its outlook shaped by upcoming inflation data and geopolitical developments in the Middle East. Unless inflation surprises to the upside or a peace deal is reached, significant moves in the Dollar are unlikely in the near term. Market participants should closely monitor both CPI results and Middle East headlines for potential shifts.