Beyond all the uncertainty associated with this year's on-again-off-again US tariffs, one core theme weighing on US interest rates and equities has been the fear of a slowing US consumer. Consumption has been the outsized driver of US growth since the pandemic, and concerns are growing that consumers are ready to spend less and save more as they await clarity on the fallout we could see from the new administration's plans for both the economy and job prospects. Consensus expects a 0.6% month-on-month recovery in the reading after last month's 0.9% drop. Any downside surprise today probably risks weaker equities, lower US interest rates and a weaker US Dollar (USD), ING's FX analyst Chris Turner notes.

DXY looks biased more towards 103.20/30 than 104.00/10

"The big question for investors right now is how hard Washington will push its reset agenda. Equities have been vulnerable to comments that the administration is prepared to accept a slowdown – or perhaps even a recession – as it ushers in a complete reset on global trade and security zones. Given the prospect of sizeable tariffs coming in early next month against Europe and Asia, we suspect risk assets are going to remain fragile on a multi-week view."

"Returning to some of the big events this week, Wednesday sees an FOMC meeting and a new set of Federal Reserve forecasts. No major changes are expected in terms of policy rates, forecasts or communication. We do see the event as a slight upside risk to the dollar, however, as the Fed sticks to just two 25bp cuts this year (61bp currently priced) and Chair Jerome Powell has a good track record of saying the right things to calm the stock market."

"Also in focus will be geopolitics, where US President Donald Trump and Russian President Vladimir Putin are due to hold a phone call on Tuesday. Any progress here is probably further good news for European FX and soft news for the DXY. US equity futures are currently trading down 0.6% even as Asian equity is showing modest gains on the back of a Chinese consumption package. Unless we get some surprisingly strong US retail sales figures today, a heavy-looking US stock market looks likely to keep US rates and the dollar on the soft side. DXY looks biased more towards 103.20/30 than 104.00/10."

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