The market environment continues to favour a strong dollar as we head into a weekend where the battle for Ukraine’s major cities looks set to intensify further. Domestic factors are also offering support to the greenback, economists at ING report.

USD could receive some extra help from solid NFP

“Another spike in the USD OIS-FRA spread is signalling that liquidity/USD funding conditions have continued to deteriorate. While still far from alarming levels seen in spring 2020, this may translate into more strength in the dollar.”

“Fed fund futures are close to pricing back in six hikes by the end of 2022, and a solid US payroll number today could help cement tightening expectations further – ultimately adding to USD good momentum.”

“Today, G7 leaders will meet, and we may hear about more sanctions against Russia. Investors will keep an eye on any hints of a coordinated effort to limit dependency on Russian commodities, which could put more upside pressure on energy prices.”

“In the current environment, we could see the dollar remain bid along with those pro-cyclical currencies that are not geographically exposed to the conflict in Ukraine (CAD, AUD, NZD).”

See – NFP Preview: Forecasts from 10 major banks, potential for upside surprise