ING analysts see limited downside for the USD despite optimism over a potential US-Iran peace deal easing oil supply risks.
The US Dollar Index remains resilient as investors weigh optimism over a potential US-Iran peace deal against persistent energy supply risks. While recent softness in oil prices suggests progress in negotiations, ING warns that inflationary pressures could resurface unless oil flows freely through the Strait of Hormuz by July.
Energy markets have already absorbed substantial supply losses, and further disruptions could push prices higher. The Federal Reserve’s tightening bias, supported by stable US jobs data, also limits expectations for a deep dollar sell-off. Markets still price in 20 basis points of Fed rate hikes, reinforcing the greenback’s support.
Short-dated US rates have eased slightly, but the broader outlook remains cautious. ING does not anticipate a significant dollar decline, even as geopolitical risks show signs of easing.