The dollar is approaching the end of the week on a softer note. Nonetheless, economists at ING think that lingering Russia-related downside risk for sentiment and upside risk for commodity prices continue to warrant a stronger dollar and weaker European currencies.

Dollar softness looks unlikely to last

“The US and its allies have repeatedly warned that Russia may escalate the current conflict with a variety of different weapons, and Putin appears quite determined to use an unexpected range of tools to counter-sanctions. too. All this continues to signal significant upside risks for commodity prices and downside risks for risk sentiment.”

“Markets may find the current levels as relatively attractive to build back some defensive long-USD positions, mostly against European currencies.”

“We also think that a market that is inching closer to pricing in 100bp of rate hikes by the Federal Reserve at the next two meetings may favour the dollar.”