US Dollar strictly tied to financial stress, but the Fed mostly carries downside risks for the greenback – ING

The Dollar regained some ground in the past two trading sessions. Economists at ING see more balanced risks for the US Dollar Index (DXY) this week.

Dollar support comes from Europe

“The resurgence in banking stress in Europe forces some softening of our bearish Dollar view for the moment, at least until we can get more clarity on the stability of the EU banking sector.”

“Still, we continue to see the Fed as mostly carrying downside risks for the greenback, as the lack of clear communication leaves the door open for dovish speculation as the US regional crisis remains unresolved and is keeping the monetary policy outlook in the US in stark contrast (for now) to that of most European central banks.” 

“On balance, we see more balanced risks for DXY this week, but volatility may remain elevated, and if anything our preference remains for a higher EUR/USD.”