The US Dollar might benefit from some outflows from exposed EM FX – ING

The US data calendar isn’t very busy this week. Retail Sales and the University of Michigan inflation expectations will attract the most attention along with jobless claims – which came in well below expectations last week, reinforcing the narrative of a still-tight labour market. We think the Dollar will be driven more by other events than data this week, barring major surprises.

First, the results of the election in Taiwan have raised again the delicate question of Taipei-Beijing relationships, with tensions among the two seen as a major risk for Asian and global risk sentiment this year. The Dollar might benefit from some outflows from exposed EM FX. The situation in the Gulf also looks rather volatile after the US and UK military operations last week, even though the impact on Oil prices has been muted so far.

Domestically, we’ll monitor the market reaction to the business tax relief extension currently being discussed in the US Congress. The impact of fiscal support may turn out to be negative for risk sentiment – and positive for the Dollar – as markets see a greater risk of sticky inflation and a lower chance of Fed rate cuts.