The dollar is set to face a second consecutive week of losses against all G10 currencies. However, economists at ING think that the combination of a material improvement in the global risk environment and further USD-adverse widening of short-term rate differentials is unlikely, and therefore expect the dollar to find a floor soon.

Dollar’s downside risks are shrinking

“It's hard to see a much calmer risk environment amid global monetary tightening and multiple downside risks (China, Russia/Ukraine), and a further shrinking of the USD’s short-term rate advantage over other G10 currencies, given that the FOMC rhetoric is still very hawkish.” 

“We see a higher chance of recovery in US rate expectations, which should put a floor under the greenback.”

“When adding a more balanced positioning picture following the latest moves, we think that the dollar’s downside risk is now looking less pronounced, and we favour instead a recovery to the 103.00 level in DXY.”