Dollar Sell-Off Potential After Tariff Pause, Says ING FX Strategist

Dollar's Trajectory Post-Tariff Pause

• 💡 The dollar's surge following the US-China trade war pause may not be sustainable, as its future direction hinges on the actual damage to the US economy.
• 🎯 Markets have reduced the risk premium attached to the dollar, welcoming de-escalation, but the focus now shifts to the US economy's underlying strength.
• ⚠️ ING is not optimistic about the dollar from this point, anticipating further sell-offs as US economic data reveals a rough quarter.

Key Economic Data to Watch

• 📊 The consumer story remains paramount, with resilience in consumer spending having propped up the US economy despite high rates.
• 📉 Forward-looking indicators like consumer confidence, PMIs, and small business surveys suggest a loss of consumer confidence and potential for higher prices.
• 🧠 The key question is whether the Trump administration's trade policy has left tangible marks on consumers, as rebuilding confidence is crucial for US growth.

Investor Sentiment and US Assets

• 📈 While the immediate shift of international investors out of US assets is on pause, rebuilding confidence in US dollar-denominated assets will take time.
• ⚠️ A risk of a snowball effect exists, where poor growth data could trigger concerns about the budget deficit and US debt sustainability.

China's Yuan and De-Dollarization Efforts

• ✅ The Chinese yuan has remained a stable currency throughout the trade turmoil, a success for the PBOC's goal of presenting it as reliable.
• 🚀 This stability benefits Beijing's efforts towards de-dollarization and promoting the yuan's international role.

The 'Mara Lago Accord' and Dollar Devaluation

• 🚫 There are no immediate signs of the 'Mara Lago accord' where countries would increase their currencies' value against the dollar.
• 📌 The US Treasury's expectation for the dollar to appreciate post-tariffs to shield consumers did not materialize; dollar stability is a prerequisite for considering devaluation.