Where we are: The DXY currently trades at 97.77, down 0.35% on the day, having traded in a range of 97.75-98.17. The dollar is testing ten-week lows amidst a broad risk-on move. We see scope for further weakness if today’s US data misses, potentially targeting 97.50.
What’s driving it: A tentative ceasefire with Iran is driving a risk-on bid across markets, easing concerns about energy supply disruptions through the Strait of Hormuz and weighing on the dollar. Domestically, the market is heavily focused on today’s 08:30 ET payrolls print. The Fed remains in a patient hold pattern, contingent on further disinflation in core services and cooling labour costs; this puts even greater weight on today’s employment data, especially Average Hourly Earnings.
- The 10-year real yield (TIPS) has fallen to 1.94%, underpinning the bid in gold and reflecting expectations of future Fed easing.
- Speculative positioning in the dollar remains crowded long (92nd percentile), creating squeeze risk if the data disappoints.
- US 2Y and 10Y yields are both down around 2-3 bps pre-data, signalling a market pricing in a higher chance of weaker data.
NY session focus: Today’s 08:30 ET employment data (Non-Farm Payrolls, Unemployment Rate, Average Hourly Earnings) will be the key driver of dollar direction. Beyond that, watch for the 10:00 ET Prelim UoM Consumer Sentiment and Inflation Expectations. A strong payrolls print could see the DXY quickly retest 98.00, while a miss could accelerate the move towards 97.50. President Trump’s 12:00 ET speech is a wildcard, but unlikely to override the data impact. The pain trade for the dollar is a surprisingly hawkish Fed pivot on the back of a robust jobs report.