ING’s Francesco Pesole notes the Dollar remains closely tied to Oil volatility, with recent Brent swings driven by conflicting headlines on Middle East tensions and a potential record IEA reserve release. He argues the proposed stockpile move is only a temporary fix, and that mixed signals on de-escalation and slightly firmer US CPI could keep USD downside contained in coming days.

Oil-driven trading caps Dollar downside

"Depending on the actual size of the reserve release, we could see some capping in oil prices in the coming days. However, oil reserve release is a temporary measure and only military de-escalation can drive crude sustainably lower, and the IEA move might be sending a hidden signal to markets of few expectations for an imminent ceasefire. In our view, these mixed signals could prevent the dollar from dropping much further today unless there are some encouraging headlines on de-escalation."

"Bonds and equities are also closely tracking oil moves, making it challenging to find any alternative angle for the dollar. Nevertheless, FX volatility has not been excessive, with the relative resilience in equities acting as a stabilising anchor for high-beta currencies and perhaps limiting USD gains."

"CPI data for February are released in the US today. We expect a 0.3% MoM print for core inflation, above the consensus 0.2% MoM. This may add some pressure on US treasuries, although oil developments will remain a much bigger driver. The spillover on the dollar may prove relatively contained."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)