ING’s Chris Turner, Francesco Pesole and Frantisek Taborsky note the Dollar starts the week soft as markets await US policy signals from the White House. Sanctions on Iran, renewed US-Canada trade tensions and possible fiscal consolidation are in focus, alongside US core PCE and Kevin Warsh’s Jackson Hole speech. They see scope for further Dollar long-squeezing and DXY consolidation within a defined range.

DXY seen consolidating near recent lows

“We made the point last week that we tend to favour a more pro-risk, benign dollar decline than some, but there are many in favour of sharper dollar losses on a return of the ‘debasement’ trade. That could be tested later today, with US Treasury Secretary, Scott Bessent, announcing a new set of sanctions on Iran. “

“With a new chapter in the US-Canada trade war opening up over the weekend, the question will be to what degree the new sanctions on Iran threaten US trade ties with China again, where China remains the largest buyer of Iran’s energy imports. Given the febrile mood in the market and positioning, a big re-escalation in the tariff war is probably a dollar negative.”

“Also, important this week are Wednesday’s release of US core PCE inflation for July and Friday afternoon’s keynote speech from Kevin Warsh at the Jackson Hole symposium.”

“While he is unlikely to shed much/any light on what the Fed will do with monetary policy next month, he will have to double-down on the Fed’s inflation-fighting credentials – this after his July press conference triggered a sell-off at the long-end of the Treasury market.”

“DXY dollar index can probably see further consolidation in a 98.50-99.00 range today, with greater risk seen on the downside.”