The US Dollar will not capitulate before the second quarter – ING

Today’s US Consumer Price Index (CPI) data could bring the real rate discussion to the fore. Economists at ING analyze its implications for the US Dollar (USD).

Lower US inflation can ignite real rate discussion

We're expecting core US CPI inflation to be in line with the consensus of 0.3%, but our economists say it could be lower. If so, a rising real policy rate would be increasingly hard to justify should the American economy start to cool.

We see the rate-cutting cycle in the US starting in May: markets are currently pricing in June as the start-point, but we reckon the risks of a softer CPI print and weak retail sales to revamp expectations for an earlier cut.

The Dollar is facing asymmetrical risks skewed to the downside this week, but the magnitude of those risks still looks limited. The strong labour market should still hinder further dovish repricing, and we think the Dollar will not capitulate before the second quarter.