Dollar: Biased to Soften on Risk-On Flows – ING

The Dollar Index is currently trading near 98.59, maintaining an overall weak pattern. Analysts at ING, including Chris Turner, noted in their latest report that recent U.S. Treasury buyback operations have served more as a signaling tool to cap high yields, which supports equity market sentiment and pressures the dollar. This macro environment is driving the market into a "risk-on, dollar-weak" mode.

**Treasury Signal Caps Dollar Recovery Space**

ING analysts believe the Treasury's buyback operations are intended to signal the market, thereby pushing down long-end yields. This move has improved risk sentiment and weakened the dollar's safe-haven appeal. They expect the Dollar Index to remain capped below the 99.00 level, struggling to achieve a meaningful breakout. Against this backdrop, high-beta currencies correlated with commodity prices, along with select emerging market currencies, are likely to perform better.

**Potential Risks Remain Noteworthy**

Despite a short-term bearish bias on the dollar, the ING team also issued a warning, stating that the main risk to this view lies in the stability of U.S. financial markets themselves. If there is a sharp selloff in the Treasury market or equities, risk aversion would reignite instantly, rekindling safe-haven demand for the dollar and interrupting its current weakness.

**Fed Minutes Could Serve as Near-Term Catalyst**

This week's market focus also includes the upcoming release of the Federal Reserve meeting minutes. ING analyst Francesco Pesole stated that investors will look for clues to determine whether Fed Chair Powell's cautious stance on further rate cuts is endorsed by the majority of committee members. Currently, risks seem slightly tilted toward a dovish outcome, and if the minutes signal more dovishness, it could trigger a negative reaction in the dollar.