ING strategists Francesco Pesole, Frantisek Taborsky and Chris Turner note that the Dollar has weakened as hawkish shifts by the ECB and BoE overshadow Jerome Powell’s recent comments. Elevated Oil prices and war-related risks keep commodities as the primary FX driver, with rate expectations seen as secondary and highly dependent on developments around the Straight of Hormuz.

Dollar pressured by overseas hawkish shifts

“While oil prices remain elevated, the size of the dollar decline in the past 24 hours seems to embed some optimism about the war. What also contributed to USD losses were the hawkish surprises by the European Central Bank and Bank of England (discussed in the sections below), which seemed to dwarf the hawkish vibes from US Federal Reserve Chair Jerome Powell’s press conference on Wednesday.”

“That said, our takeaway from this week of central bank decisions hasn’t changed: not enough guidance has been offered to dent oil’s role as a major market driver. Rate expectations should remain fluid and commodity price dependent, and continue to play a secondary role for FX.”

“The next few days will tell us whether this wave of cautious optimism has legs. The dollar can fall more on military de-escalation news, but clarity on the Straight of Hormuz reopening is necessary to prevent USD rebounds at a second stage.”

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